Federal Deposit Insurance Corporation v. Bank of America, N.A.

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

FEDERAL DEPOSIT INSURANCE

CORPORATION,

Plaintiff,

Civil Action No. 17 - 36 (LLA)

v.

BANK OF AMERICA, N.A.,

Defendant.

MEMORANDUM OPINION

Plaintiff, the Federal Deposit Insurance Corporation (the “FDIC”), brings this action

against Defendant, Bank of America, N.A. (“BANA”), alleging its failure to pay $1.12 billion in

deposit insurance assessments in violation of the Federal Deposit Insurance Act (“FDIA”),

12 U.S.C. § 1817, and its resulting unjust enrichment. ECF No. 10. BANA raises several

affirmative defenses to the FDIC’s claims and brings counterclaims against the FDIC for violations

of the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq., arising out of the FDIC’s

promulgation and enforcement of a 2011 regulation that set the formula for calculating deposit

insurance assessment rates.

This matter is before the court on the FDIC’s partial motion for summary judgment, ECF

No. 361, and BANA’s cross-motion for summary judgment, ECF No. 366. Upon consideration of

the motions and supporting documentation, the court will grant in part and deny in part the FDIC’s

partial motion for summary judgment, and grant in part and deny in part BANA’s motion for

summary judgment, and it will enter judgment in favor of the FDIC and against BANA in the

amount of $540,261,499.90, representing BANA’s underpaid assessments from 2Q 2013 through

4Q 2014, plus pre- and post-judgment interest.

I. FACTUAL BACKGROUND

A. The FDIC and the FDIA

The FDIC was created in 1933 during the Great Depression. Since that time, it has played

an “important role in maintaining stability and public confidence in the banking system and in

protecting the savings of ordinary Americans.” ECF No. 364, at 5. The FDIC does this by insuring

banks: when an insured bank fails, the FDIC “provides depositors access to their insured accounts

at that institution,” and where “the institution’s assets are insufficient, the FDIC pays the balance

from the Deposit Insurance Fund.” Id. 1

The FDIC finances the Deposit Insurance Fund by collecting quarterly premiums, called

“assessments,” from the banks it insures. Id. ¶ 5. The FDIA directs the FDIC to “by regulation,

establish a risk-based assessment system for insured depository institutions.” 12 U.S.C.

§ 1817(b)(1)(A). The risk-based assessment system must be based on:

(i) the probability that the Deposit Insurance Fund will incur a loss

with respect to the institution, taking into consideration the risks

attributable to—

(I) different categories and concentrations of assets;

(II) different categories and concentrations of liabilities . . .;

and

(III) any other factors the [FDIC] determines are relevant to

assessing such probability;

1

The FDIC pays up to $250,000 per depositor, per FDIC-insured bank, for each account ownership

category (single accounts, joint accounts, certain retirement accounts, trust accounts, employee

benefit plan accounts, corporation/partnership/unincorporated association accounts, and

government accounts). FDIC, Understanding Deposit Insurance, https://perma.cc/24H7-GTM9.

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(ii) the likely amount of any such loss; and

(iii) the revenue needs of the Deposit Insurance Fund.

Id. § 1817(b)(1)(C).

The FDIA permits the FDIC to use “separate risk-based assessment systems for large and

small” banks. Id. § 1817(b)(1)(D). Accordingly, the FDIC employs different methodologies for

calculating a bank’s risk depending on whether the bank is a small institution, a large institution,

or a highly complex institution (“HCI”). ECF No. 248-4 ¶ 5. HCIs are “the largest and most

complex banks.” Id. ¶ 7. During the time period relevant to this case, there were only nine HCIs

in the United States, including BANA. Id. ¶ 12. 2

Being insured by the FDIC makes a bank more appealing to customers because they know

that their savings are safe. But as with any insurance system, where there is greater risk, the insurer

charges a higher premium. Just as a teenage driver pays more in car insurance than an adult driver,

a risky bank will pay higher quarterly assessments to the FDIC.

B. The 2011 Rule

After the Great Recession in 2008, it became clear to lawmakers that existing regulations

did not go far enough in ensuring the stability of the national banking system. 76 Fed. Reg. 10672,

10674 (Feb. 25, 2011). In 2010, Congress passed the Dodd-Frank Wall Street Reform and

2

The FDIC defines an HCI as: “(i) An insured depository institution (excluding a credit card bank)

that has had $50 billion or more in total assets for at least four consecutive quarters . . . that is

controlled by a U.S. parent holding company that has had $500 billion or more in total assets for

four consecutive quarters, or controlled by one or more intermediate U.S. parent holding

companies that are controlled by a U.S. holding company that has had $500 billion or more in

assets for four consecutive quarters; or (ii) A processing bank or trust company.” 12 C.F.R.

§ 327.8(g)(1). In addition to BANA, the other HCIs at the time were Bank of New York Mellon;

Citibank, N.A.; Goldman Sachs Bank USA; JPMorgan Chase Bank, N.A.; Morgan Stanley N.A.;

The Northern Trust Company; State Street Bank and Trust Company; and Wells Fargo Bank, N.A.

ECF No. 248-4 ¶ 12.

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Consumer Protection Act (the “Dodd-Frank Act”) to “improve[] accountability and transparency

in the financial system” and “end ‘too big to fail.’” Pub. L. No. 111-203, 124 Stat. 1376 (2010).

The Dodd-Frank Act achieved this goal in part by requiring the FDIC to amend its regulations for

calculating banks’ assessment rates. Id. at 1376, 1538; see 76 Fed. Reg. at 10674.

In response to the Dodd-Frank Act, the FDIC began “develop[ing] a comprehensive,

long-range management plan for the [Deposit Insurance Fund].” 76 Fed. Reg. at 10674; see 75

Fed. Reg. 23516 (May 3, 2010); 75 Fed. Reg. 72582 (Nov. 24, 2010); 75 Fed. Reg. 72612

(Nov. 24, 2010). In November 2010, it issued Notices of Proposed Rulemaking and Requests for

Comment. The proposed rules suggested revisions to the assessment methodologies for large

banks and HCIs. 75 Fed. Reg. at 72582; 75 Fed. Reg. at 72612. The FDIC published the final

rule (“the 2011 Rule”) in February 2011, and it went into effect in 2Q 2011. 76 Fed. Reg. at 10672

(codified at 12 C.F.R. § 327.9(b)(2) (2011)).

In promulgating the 2011 Rule, the FDIC aimed to “revise the large insured depository

institution assessment system to better differentiate for risk and better take into account losses from

large institution failures that the FDIC may incur” “if a large insured depository institution fails.”

Id. at 10672, 10688. Before the 2011 Rule, the FDIC placed each large bank or HCI into one of

four risk categories depending on its capital levels and supervisory evaluations. Id. at 10672. The

2011 Rule eliminated those categories and instead implemented “scorecards”: one scorecard for

large banks and another for HCIs like BANA. Id. at 10688.

The scorecards for both large banks and HCIs included a “performance score” and a “loss

severity score.” Id. at 10695. The performance score “measure[d] [a bank]’s financial

performance and its ability to withstand stress,” while the loss severity score “measure[d] the

relative magnitude of potential losses to the FDIC in the event of [the bank]’s failure.” Id.

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at 10689. The FDIC multiplied the performance score by the loss severity score to produce a

bank’s “combined score,” which determined the amount of the bank’s quarterly payment. Id.

As one can see from the HCI scorecard, replicated below, the FDIC used a number of

sub-factors to determine the performance and loss severity scores.

Id. at 10695. One factor that the FDIC used to determine performance (specifically, to assess a

bank’s ability to withstand asset-related stress) was the “concentration measure,” which quantified

how concentrated (not diversified) a bank’s risk exposure was. Id. at 10696.

The 2011 Rule calculated the concentration measure for large banks and HCIs differently.

The HCI scorecard “consider[ed] the [HCI’s] top 20 counterparty exposures . . . and the largest

counterparty exposure . . . instead of the growth-adjusted portfolio concentrations measure used in

the scorecard for large institutions.” Id. at 10696. As the 2011 Rule explained, the HCI scorecard

used these measures “because recent experience show[ed] that the concentration of a[n HCI]’s

exposures to a small number of counterparties—either through lending or trading activities—

significantly increase[d] the institution’s vulnerability to unexpected market events. The FDIC

use[d] the top 20 counterparty exposure and the largest counterparty exposure to capture this risk.”

Id.

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Importantly, the 2011 Rule defined “counterparty exposure” as “the sum of Exposure at

Default (EAD) associated with derivatives trading and Securities Financing Transactions (SFTs)

and the gross lending exposure (including all unfunded commitments) for each counterparty or

borrower at the consolidated entity level.” Id. at 10721 (emphasis added). It is the meaning of this

phrase that is at the heart of this case.

The 2011 Rule and its subsequent permutations that also required reporting at the

“consolidated entity level,” were in effect from April 1, 2011 through December 31, 2015.

12 C.F.R. § 327.9 (2011). Every quarter during this period, HCIs reported their required

information to the FDIC in a “Call Report.” ECF No. 248-4 ¶ 13. In June 2011, the FDIC

published instructions accompanying the Call Report stating that HCIs should report the amount

of their largest counterparty exposure and the total amount of their twenty largest counterparty

exposures “at the consolidated entity level of the counterparty.” ECF No. 256-4, at 9. In

March 2012, the FDIC updated those instructions, adding that counterparty exposures should be

reported on a “fully consolidated basis.” ECF No. 286-2, at 4. In December 2012, the FDIC

published a notice stating that “highly complex institutions should report counterparty credit

exposure on a consolidated entity basis (legal consolidated entity).” 76 Fed. Reg. 77315, 77322

(Dec. 12, 2011). The notice further stated that the “FDIC believes that highly complex institutions

should have the ability to aggregate exposures arising from financial contracts with entities within

a legal consolidated entity and report the exposure as outlined in the final rule.” Id.

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C. The 2016 Audit

In 2016, an FDIC audit revealed that “BANA had not consolidated its counterparty

exposures to the ultimate parent level as required” for 1Q 2012 through 4Q 2014. 3 ECF No. 248-4

¶ 26. Instead, “BANA reported the amount of its direct exposure to a given counterparty without

adding to that amount its exposures to the counterparty’s subsidiaries or to other members of the

counterparty’s corporate family.” Id. This lowered BANA’s concentration measure, which in turn

considerably lowered the overall amount that BANA paid in assessments for those quarters. After

completing the audit, the FDIC invoiced BANA $1,120,563,178.49 in underpaid assessments.

ECF No. 364, at 15. BANA declined to pay. Id.

II. PROCEDURAL HISTORY

In January 2017, the FDIC filed suit against BANA, alleging that BANA had failed to pay

over $500 million dollars in mandatory assessments for 2Q 2013 through 4Q 2014, as required by

the FDIA. ECF No. 1 ¶¶ 50-51. In April 2017, the FDIC amended its complaint, alleging that

BANA had failed to pay $1.12 billion in mandatory assessments in violation of the FDIA (Count I)

and had unjustly enriched itself at the FDIC’s expense by retaining that money (Count II). ECF

No. 10 ¶¶ 72-94.

BANA moved to dismiss in part, arguing that some of the assessment quarters fell outside

the statute of limitations and that the FDIC could not bring a claim for unjust enrichment. ECF

No. 13. The FDIC responded with a pre-discovery motion for summary judgment. ECF No. 39.

In March 2018, the court (Sullivan, J.) determined that it would be premature to dismiss as

untimely the FDIC’s claims concerning certain quarters and that the FDIC could plead unjust

3

BANA consolidated its counterparty exposures correctly for 2Q 2011 and 3Q 2011, the first two

quarters that the 2011 Rule was in effect. See ECF No. 364, at 27; ECF No. 376-2, at 27.

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enrichment as an alternative theory of liability. Fed. Deposit Ins. Corp. v. Bank of Am., N.A., 308

F. Supp. 3d 197, 204-07 (D.D.C. 2018). The court therefore denied BANA’s motion to dismiss.

Id. at 207. Shortly thereafter, the court denied the FDIC’s motion for summary judgment without

prejudice so that the parties could proceed with discovery. Apr. 9, 2018 Minute Order.

In April 2018, BANA filed an answer and counterclaims, denying the FDIC’s allegations

and raising various challenges to the 2011 Rule under the APA. ECF No. 68. After an initial

round of discovery concluded in 2020, 4 the parties filed cross-motions for summary judgment.

ECF Nos. 247, 257. The court referred the case, first to Magistrate Judge Faruqui and then to

Magistrate Judge Upadhyaya, for full case management. Oct. 13, 2020 Minute Order; Aug. 29,

2022 Minute Order.

In April 2023, Judge Upadhyaya issued a Report & Recommendation (“R&R”),

recommending that both parties’ motions for summary judgment be granted in part and denied in

part. ECF No. 312. On Count I, which concerns BANA’s liability under the FDIA, she concluded

that the FDIC had the better interpretation of the 2011 Rule and that BANA was thus liable for the

unpaid assessment fees, but she found that genuine disputes of material fact warranted a trial on

whether the FDIC’s claims concerning BANA’s underpaid assessments for 1Q 2012 through

1Q 2013 were time-barred. ECF No. 312, at 14, 40-45, 71-72. On Count II, which concerns the

FDIC’s claim for unjust enrichment, Judge Upadhyaya concluded that the claim failed because the

FDIC had an adequate remedy at law and that, even if the FDIC could pursue such a claim, it could

not seek disgorgement as a remedy because the FDIA restricts recovery to the amount of unpaid

4

The court determined that it was proper to bifurcate discovery on BANA’s liability and the

FDIC’s disgorgement remedy because “any calculations of a disgorgement award will be

unnecessary if the trier of fact finds in favor of BANA on the FDIC’s unjust enrichment claim.”

Apr. 2, 2020 Minute Order.

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assessments. Id. at 46-54, 71. With regard to BANA’s counterclaims, she concluded that the

2011 Rule did not violate the APA, entitling the FDIC to summary judgment without needing to

consider its affirmative defenses (laches, acquiescence, and waiver) to BANA’s counterclaims.

Id. at 56-72 & n.19.

Both parties filed objections to Judge Upadhyaya’s R&R. ECF Nos. 322, 326. BANA

objected to Judge Upadhyaya’s recommendation on Count I, arguing that: (1) there was no need

for a trial because the FDIC’s claims concerning the assessments for 1Q 2012 through 1Q 2013

were time-barred as a matter of law; (2) BANA had the correct reading of the 2011 Rule; and

(3) BANA lacked fair notice of the FDIC’s interpretation of the Rule. ECF No. 322, at 1-2.

BANA also objected to her recommendation on its counterclaims, arguing that: (1) the FDIC’s

scorecards were not risk-based; (2) the 2011 Rule lacked a reasonable evidentiary basis; and

(3) the FDIC’s concentration measure for HCIs was arbitrary and capricious. Id. at 2-3. For its

part, the FDIC objected to Judge Upadhyaya’s statute-of-limitations analysis on Count I, arguing

that its claims related to the assessments for 1Q 2012 through 1Q 2013 were timely. See ECF

No. 326, at 4. It also objected to her recommendation on Count II, arguing that it may pursue a

claim of unjust enrichment and seek disgorgement as a remedy. Id. at 3-4. The parties completed

briefing on their objections in July 2023. ECF Nos. 323 to 325, 327 to 335. In March 2024, Judge

Upadhyaya issued a second R&R concerning an expert dispute that was relevant to her R&R on

summary judgment. ECF No. 340. The parties completed briefing on their objections to that R&R

in May 2024. ECF Nos. 344 to 350.

Meanwhile, the case was reassigned to the undersigned in December 2023. See Dec. 14,

2023 Docket Entry. In June 2024, the court held a status conference where it asked for the parties’

views on whether the court needed to resolve the expert dispute before it could consider

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Judge Upadhyaya’s R&R on summary judgment and whether the case was likely to be affected by

the Supreme Court’s forthcoming decision in Loper Bright Enterprises v. Raimondo, No. 22-451

(U.S.). See June 7, 2024 Minute Entry. After the hearing, BANA represented that the court could

defer resolving the expert dispute until it had resolved the parties’ objections to Judge Upadhyaya’s

R&R on summary judgment. ECF No. 354.

In July 2024, the Supreme Court decided Loper Bright, 603 U.S. 369 (2024), overruling

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Given the

magnitude of that decision and its potential effect on the case, the court vacated Judge Upadhyaya’s

R&Rs, denied the parties’ outstanding objections as moot, and denied the parties’ cross-motions

for summary judgment without prejudice to refiling. July 1, 2024 Minute Order. The parties filed

new cross-motions for summary judgment, and briefing was completed in October 2024. ECF

Nos. 361, 367, 372, 376. In November 2024, this court held a hearing on the cross-motions.

Nov. 20, 2024 Minute Entry. The motions are ripe for disposition.

III. LEGAL STANDARDS

A. Summary Judgment Generally

Under Federal Rule of Civil Procedure 56, “[a] party is entitled to summary judgment only

if there is no genuine issue of material fact and judgment in the movant’s favor is proper as a matter

of law.” Soundboard Ass’n v. Fed. Trade Comm’n, 888 F.3d 1261, 1267 (D.C. Cir. 2018) (quoting

Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin., 452 F.3d 798, 805 (D.C. Cir. 2006));

see Fed. R. Civ. P. 56(a). The moving party bears the burden of demonstrating the “absence of a

genuine issue of material fact” in dispute, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986),

while the nonmoving party must present specific facts supported by materials in the record that

would be admissible at trial and that could enable a reasonable jury to find in its favor, see

10

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Allen v. Johnson, 795 F.3d 34, 38

(D.C. Cir. 2015) (noting that, on summary judgment, the appropriate inquiry is “whether, on the

evidence so viewed, ‘a reasonable jury could return a verdict for the nonmoving party’” (quoting

Liberty Lobby, 477 U.S. at 248)).

“[C]ourts may not resolve genuine disputes of fact in favor of the party seeking summary

judgment,” Tolan v. Cotton, 572 U.S. 650, 656 (2014) (per curiam), and “[t]he evidence of the

nonmovant is to be believed, and all justifiable inferences are to be drawn in [its] favor,” id. at 651

(first alteration in original) (quoting Liberty Lobby, 477 U.S. at 255). “Credibility determinations,

the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury

functions, not those of a judge.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150-51

(2000) (quoting Liberty Lobby, 477 U.S. at 255); see Burley v. Nat’l Passenger Rail Corp., 801

F.3d 290, 295-96 (D.C. Cir. 2015). For a factual dispute to be “genuine,” the non-moving party

must establish more than “[t]he mere existence of a scintilla of evidence in support of [its]

position,” Liberty Lobby, 477 U.S. at 252, and it cannot rely on “mere allegations” or conclusory

statements, see Equal Rts. Ctr. v. Post Props., Inc., 633 F.3d 1136, 1141 n.3 (D.C. Cir. 2011)

(quoting Sierra Club v. Env’t Prot. Agency, 292 F.3d 895, 899 (D.C. Cir. 2002)). “If the evidence

is merely colorable, or is not significantly probative, summary judgment may be granted.” Liberty

Lobby, 477 U.S. at 249-50 (citations omitted).

When parties file cross-motions for summary judgment, each motion is viewed separately,

in the light most favorable to the nonmoving party, with the court “determining, for each side,

whether a judgment may be entered in accordance with the Rule 56 standard.” Auto-Owners Ins.

Co. v. Stevens & Ricci Inc., 835 F.3d 388, 402 (3d Cir. 2016) (quoting 10A Charles Alan Wright

11

et al., Federal Practice and Procedure § 2720 (3d ed. 2016)); see Fox v. Transam Leasing, Inc.,

839 F.3d 1209, 1213 (10th Cir. 2016); Pac. Indem. Co. v. Deming, 828 F.3d 19, 23 (1st Cir. 2016).

B. Summary Judgment Under the APA

Rule 56’s summary judgment standard does not apply to BANA’s counterclaims arising

under the APA. Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001). Instead,

“the district judge sits as an appellate tribunal” and the “‘entire case’ on review is a question of

law.” Id. The court must “decid[e], as a matter of law, whether the agency action is supported by

the administrative record and otherwise consistent with the APA standard of review.” Sierra Club

v. Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006). This means that the court must “hold unlawful

and set aside” agency actions that are, among other things, “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law,” “in excess of statutory jurisdiction, authority,

or limitations, or short of statutory right,” or “without observance of procedure required by law.”

5 U.S.C. § 706(2)(A), (C), (D).

IV. DISCUSSION

In evaluating the parties’ cross-motions for summary judgment, the court will first consider

BANA’s challenge to the 2011 Rule, because the court need only interpret the rule if it was

lawfully promulgated. The court will then consider BANA’s liability under the 2011 Rule, before

turning to the statutory and equitable remedies available to the FDIC. The court will conclude by

examining the availability of BANA’s equitable defenses.

A. Validity of the 2011 Rule

BANA raises several challenges to the validity of the 2011 Rule under the APA, ECF

No. 367-2, at 24-36, but they collapse into two groups: (1) that the 2011 Rule was inconsistent

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with the FDIA, id. at 24-27; and (2) that, even if the FDIA permitted the FDIC to promulgate the

2011 Rule, the rule is arbitrary and capricious and procedurally flawed, id. at 27-36. The FDIC

responds that the 2011 Rule was within the boundaries of the broad discretion conferred upon the

FDIC by the FDIA and that it promulgated the rule consistent with the APA’s evidentiary and

procedural requirements. ECF No. 372-2, at 43-58. The court concludes that the 2011 Rule

comported with the FDIA, was based on sufficient evidence, and was properly promulgated under

the APA.

After Loper Bright, “[c]ourts must exercise their independent judgment in deciding

whether an agency has acted within its statutory authority.” 603 U.S. at 412. Even when the

meaning of a statute is unclear, “courts need not and under the APA may not defer to an agency

interpretation of the law simply because a statute is ambiguous.” Id. at 413. That is because

statutes have “a single, best meaning,” id. at 400, and “the final interpretation of the laws [is] the

proper and peculiar province of the courts,” id. at 385 (internal quotation marks omitted) (quoting

The Federalist, No. 78, at 535 (A. Hamilton)).

That said, in many instances, the best reading of a statute may be that Congress intended

for the agency to retain some measure of discretion. Id. at 394. When Congress “delegates

authority to an agency consistent with constitutional limits, courts must respect the delegation,

while ensuring that the agency acts within it.” Id. at 413. This is especially the case where statutes

“‘expressly delegate[]’ to an agency the authority to give meaning to a particular statutory term,”

id. at 394 (alteration in original) (quoting Batterton v. Francis, 432 U.S. 416, 425 (1977)),

“empower an agency to prescribe rules to ‘fill up the details’ of a statutory scheme,” id. at 395

(quoting Wayman v. Southard, 10 Wheat. 1, 43 (1825)), or allow an agency to “regulate subject to

the limits imposed by a term or phrase that ‘leaves agencies with flexibility,’ such as ‘appropriate’

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or ‘reasonable,’” id. (citation omitted) (quoting Michigan v. Env’t Prot. Agency, 576 U.S. 743, 752

(2015)). In such cases, the task before the court is to “fix[] the boundaries of [the] delegated

authority,” id. (second alteration in original) (quoting H. Monaghan, Marbury and the

Administrative State, 83 Colum. L. Rev. 1, 27 (1983)), and then “ensur[e] the agency has engaged

in ‘reasoned decisionmaking’ within those boundaries,” id. (quoting Michigan, 576 U.S. at 750).

1. The FDIC acted within the bounds of the broad discretion accorded by the FDIA

Applying the above principles, the court concludes that the FDIA confers substantial

discretion on the FDIC to determine the relevant components of a “risk-based assessment system”

as that term is defined in the statute. 12 U.S.C. § 1817(b)(1)(C). As noted, the FDIA states that

the FDIC “shall, by regulation, establish a risk-based assessment system for insured depository

institutions.” Id. § 1817(b)(1)(A). The statute defines a “risk-based” assessment system as one

based on:

(i) the probability that the Deposit Insurance Fund will incur a loss

with respect to the institution, taking into consideration the risks

attributable to—

(I) different categories and concentrations of assets;

(II) different categories and concentrations of liabilities . . . ;

and

(III) any other factors the [FDIC] determines are relevant to

assessing such probability;

(ii) the likely amount of any such loss; and

(iii) the revenue needs of the Deposit Insurance Fund.

Id. § 1817(b)(1)(C). BANA contends that the statutory mandate that the FDIC base its assessment

system on “the risk that a bank will fail in a way that causes losses to the Fund, with attention to

the amount of those losses” precludes the FDIC from considering “‘other policy factors.’” ECF

No. 367-2, at 24-25 (quoting Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887 (D.C. Cir. 2024)).

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In BANA’s view, the 2011 Rule’s use of “scorecards” that based 80% of an HCI’s assessment rate

on its “performance score” and 20% on its “loss severity score” is inconsistent with the FDIA’s

command because the “statutory factors were being given [only] 20% weight.” Id. at 25-27; see

12 U.S.C. § 1817(b)(1)(C)(i).

The FDIC counters that the scorecards’ performance score component did measure the

probability of an HCI incurring a loss to the Fund, because it “explicitly takes into consideration

the risks attributable to different categories and concentrations of assets, different categories and

concentrations of liabilities, and many other relevant factors regarding loss.” ECF No. 372-2, at 45

(quoting 76 Fed. Reg. at 10701). Therefore, the FDIC argues, the 2011 Rule’s performance score

“falls squarely within the FDIC’s statutory authority,” id., and the court need not “rely on any

deference to [the FDIC’s] statutory interpretation . . . to reject BANA’s . . . claims,” id. at 44. The

court agrees with the FDIC that the 2011 Rule did not exceed the scope of its delegated authority

under the FDIA.

The court begins, as it must, with the plain text of the FDIA. Pac. Gas & Elec. Co. v. Fed.

Energy Regul. Comm’n, 113 F.4th 943, 948 (D.C. Cir. 2024). “To construe th[e] text, [courts]

look to the ordinary meaning of [the statute’s] key terms.” Novartis Pharms. Corp. v. Johnson,

102 F.4th 452, 460 (D.C. Cir. 2024). The FDIA requires that the FDIC “establish a risk-based

assessment system,” 12 U.S.C. § 1817(b)(1)(A), which is defined as a system for calculating

assessments based on (1) “the probability that the Deposit Insurance Fund will incur a loss” by

“taking into consideration the risks attributable to,” id. § 1817(b)(1)(C)(i) (emphasis added), a few

categories and concentrations of assets and liabilities enumerated in the statute, id.

§ 1817(b)(1)(C)(i)(I), (II), as well as “any other factors [that] the [FDIC] determines are relevant

to assessing such probability,” id. § 1817(b)(1)(C)(i)(III) (emphases added) and (2) “the likely

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amount of any such loss,” id. § 1817(b)(1)(C)(ii). To take a factor into “consideration” is to

“weigh[] or take[] [it] into account when formulating an opinion or plan.” Consideration,

Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). 5 “Any” is a broad term, meaning “one,

some, or all indiscriminately of whatever quantity” or “unmeasured or unlimited in amount,

number, or extent.” Any, Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). To

“determine” is “to find out or come to a decision about by investigation, reasoning, or calculation.”

Determine, Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). Finally, something is

“relevant” when it has “significant and demonstrable bearing on the matter at hand.” Relevant,

Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). Taken together, the plain meanings of

these words confer a great deal of discretion on the FDIC. The agency is called on to incorporate

into its risk-based assessment system as many or as few factors as it wishes, as long as its

“investigation, reasoning, or calculation” leads it to believe that those factors may have “significant

or demonstrable bearing” on the Deposit Insurance Fund’s likelihood of incurring a loss. In other

words, so long as a factor bears on the risk of the Fund incurring a loss, the FDIC has wide latitude

to consider it in designing the assessment system.

In Doolin Security Savings Bank, F.S.B. v. Federal Deposit Insurance Corp., 53 F.3d 1395

(4th Cir. 1995), the Fourth Circuit confirmed that the FDIA’s language confers significant

discretion on the FDIC. There, the court was interpreting an older, but nearly identical, version of

Section 1817(b). Id. at 1400. The court explained that the plaintiff’s “selective emphasis on

certain words in the [FDIA] cannot detract from the fact that the statute expressly gives the FDIC

considerable discretion by allowing the FDIC to consider ‘any other factors the [FDIC] determines

5

The court relies on dictionary definitions from the time Congress added the relevant language to

the FDIA. See Truck Ins. Exch. v. Kaiser Gypsum Co., 602 U.S. 268, 278 & n.3 (2024) (looking

to ordinary meaning at the time of the statute’s enactment).

16

are relevant’ in calculating an institution’s semiannual assessment.” Id. (second alteration in

original) (emphasis added) (quoting 12 U.S.C § 1817(b)(1)(C)). BANA argues that the FDIC’s

reliance on Doolin is inapposite because that court relied on the now-overruled doctrine of

Chevron deference in arriving at its holding. ECF No. 376-2, at 3. While it may be true that the

court’s ultimate disposition of the case relied on Chevron deference, the court’s conclusion that

the FDIA gives the FDIC considerable discretion was based on its plain-text reading of the

statutory language. See Doolin, 52 F.3d at 1400. Thus, the plain reading of the statute that the

court arrives at today regarding the scope of the FDIC’s discretion in choosing factors to consider

when measuring the likelihood of loss accords with Doolin even in the absence of Chevron

deference.

Under the plain text of the FDIA, as long as the FDIC believes that a factor is relevant to the

determination of a bank’s likelihood of incurring a loss, the FDIC may consider it. Having “fix[ed]

the boundaries of [the] delegated authority,” Loper Bright, 603 U.S. at 395 (second alteration in

original) (quoting H. Monaghan, Marbury and the Administrative State, 83 Colum. L. Rev. 1, 27

(1983)), the court concludes that the FDIC had the authority to promulgate the 2011 Rule.

2. The FDIC engaged in “reasoned decisionmaking,” the 2011 Rule is supported by

substantial evidence, and the process was not procedurally flawed

Having dispensed with BANA’s argument that the 2011 Rule exceeded the scope of

authority granted to the FDIC by the FDIA, the court considers whether the FDIC engaged in

“reasoned decisionmaking” in arriving at the 2011 Rule. Id. at 396 (quoting Michigan, 576 U.S.

at 750). BANA argues that the rule “lacked any reasonable evidentiary basis,” ECF No. 367-2,

at 24; see id. at 24-27, 34-35; that the FDIC “rel[ied] on flawed and dimly explained statistical

models,” id. at 24; see id. at 30-33, and failed to engage with commenters that pointed this out, id.

17

at 30-33; and that the FDIC failed to explain why it changed one key metric between two versions

of the proposed rule, id. at 35-36. The court disagrees and addresses each in turn.

Evidentiary basis. “[T]he process by which [an agency] reaches [its] result must be logical

and rational,” and “agency action is lawful only if it rests ‘on a consideration of the relevant

factors.’” Michigan, 576 U.S. at 750 (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State

Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). In assessing the reasonableness of an agency’s

decision-making process, the court must not “substitute its judgment for that of the agency.” State

Farm Mut. Auto. Ins. Co., 463 U.S. at 43. Instead, it must apply the “deferential” arbitrary-and-

capricious standard, Fed. Commc’ns Comm’n v. Prometheus Radio Project, 592 U.S. 414, 423

(2021), and consider whether the agency has “examine[d] the relevant data and articulate[d] a

satisfactory explanation for its action[,] including a ‘rational connection between the facts found

and the choice made,’” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck

Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). The burden of proof rests on the party

challenging the agency’s action as arbitrary and capricious. Pierce v. Sec. & Exch. Comm’n, 786

F.3d 1027, 1035 (D.C. Cir. 2015).

BANA first argues that it is incorrect to understand the FDIC’s performance score as a

“risk-based” measure because “[t]here is an undisputed and material difference” between the

performance of a bank generally and its risk of losses to the Deposit Insurance Fund. ECF

No. 376-2, at 3. BANA explains that, in many instances, poorly performing banks have failed

without any loss to the Fund and that the FDIC has deemed healthy banks to have failed simply

because they received non-fund government support. Id. at 3-4. The FDIC responds that “[t]he

performance score focuses on the probability that a bank will fail,” ECF No. 372-2, at 46, and is

thereby tethered to Section 1817(b)(1)(C)(i)’s “probability that the [Deposit Insurance Fund] will

18

incur a loss,” 12 U.S.C. § 1817(b)(1)(C)(i), “while the loss severity score focuses on the magnitude

of loss in the event of failure,” ECF No. 372-2, at 46, and is tethered to Section 1817(b)(1)(C)(ii)’s

requirement that the FDIC consider “the likely amount of any such loss,” 12 U.S.C.

§ 1817(b)(1)(C)(ii). In the FDIC’s view, both metrics are doing important and independent work

because, for example, “[a] bank that fails (or would have failed without significant government

support) but causes no loss may not shed light on the magnitude of loss, but it can reveal factors

affecting the probability of failure.” ECF No. 372-2, at 46. Taking care not to substitute its

judgment for the agency’s, the court considers whether the FDIC “examine[d] the relevant data

and articulate[d] a satisfactory explanation for its action[,] including a ‘rational connection

between the facts found and the choice made.’” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43

(quoting Burlington Truck Lines, Inc., 371 U.S. at 168).

The court finds compelling the FDIC’s explanation that the performance score inherently

accounts for “risks attributable to different categories and concentrations of assets, different

categories and concentrations of liabilities, and many other relevant factors regarding loss.” ECF

No. 372-2, at 45 (quoting 76 Fed. Reg. at 10701); see 76 Fed. Reg. at 10695-96, 10712-14

(discussing components of the performance score). Examination of the HCI scorecard bears this

out, revealing that many factors used in calculating a bank’s performance score have a “rational

connection,” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc.,

371 U.S. at 168), to its likelihood of incurring a loss.

19

76 Fed. Reg. at 10695. For example, the performance score expressly takes into account a bank’s

ability to withstand asset- and funding-related stress—both variables that the court finds have a

rational connection to the bank’s risk of incurring a loss to the Fund. Similarly, a bank’s

“CAMELS” score, which comprises 30% of the overall performance score and incorporates risk

factors like “[c]apital adequacy,” “[a]sset quality,” and “[l]iquidity,” similarly provides a

reasonable way of assessing the bank’s likelihood of failure. 76 Fed. Reg. at 10709.

BANA points to various historical examples to make the point that there is not always a

clear correlation between a bank’s performance score and its likelihood of incurring a loss. ECF

No. 376-2, at 3-5. But these examples are unavailing. The law does not require the FDIC to

develop a perfect measure of predicting a bank’s risk of incurring a loss—the FDIC is merely

required to develop one that comports with the statutory criteria and demonstrates “reasoned

decisionmaking” evidenced by a “rational connection between the facts found and the choice

made.” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc., 371

U.S. at 168). Accordingly, even if the HCI scorecard is not a perfect measure of the likelihood of

20

loss, the court finds that the FDIC has cleared the bar of explaining the rational connection between

its performance score and a bank’s risk of loss to the Fund. 6

BANA relatedly argues that even if the FDIC is able to articulate a rational connection

between its performance score and risk of a loss to the Fund now, it did not do so at the time it

promulgated the 2011 Rule and also failed to respond to concerns raised by commenters. ECF

No. 367-2, at 25, 27-30. As support, BANA claims that the FDIC “specifically disclaimed any

relationship between the performance score and either of the statutory criteria” when it

promulgated the rule, instead supporting the performance score with “a boilerplate recitation of

the statutory criteria, not a reasoned analysis.” ECF No. 376-2, at 4-5; see Sec. & Exch. Comm’n

v. Chenery Corp., 332 U.S. 194, 196 (1947). The FDIC contests this characterization, pointing to

various parts of the rule in which it explains how the performance score captures risk. ECF

No. 372-2, at 45. The court agrees that the FDIC has consistently maintained that the performance

score captures risk and is not now relying on post-hoc justifications.

“[A] reviewing court . . . must judge the propriety of [agency] action solely by the grounds

invoked by the agency. If those grounds are inadequate or improper, the court is powerless to

affirm the administrative action by substituting what it considers to be a more adequate or proper

6

BANA relatedly argues that it was arbitrary and capricious for the FDIC to “adopt[] an

assessment system that shifted the burden of assessments away from smaller institutions and

increased the share of overall assessments paid by HCIs, despite undisputed evidence and

comments that HCIs pose a lower risk to the Fund.” ECF No. 367-2, at 34-35. However, as

described, the FDIC’s focus on the magnitude of loss—reflected in the loss severity score—is tied

to the statutory requirement that the FDIC consider “the likely amount of any . . . loss,” in the

event of a bank failure, 12 U.S.C. § 1817(b)(1)(C)(ii), not just the probability of failure itself.

Because the failure of an HCI has the potential to be far more catastrophic than the failure of a

non-HCI, it was not arbitrary and capricious for the FDIC to charge HCIs more in assessments. In

other words, there is a clear “rational connection between the facts found and the choice made.”

State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc., 371 U.S.

at 1368).

21

basis.” Chenery Corp., 332 U.S. at 196. Therefore, courts must “look to what the agency said at

the time of the rulemaking—not to its lawyers’ post-hoc rationalizations.” Council for Urological

Ints. v. Burwell, 790 F.3d 212, 222 (D.C. Cir. 2015).

Within the 2011 Rule itself, the FDIC articulated the connection between performance

score and risk, specifically as it related to HCIs:

For a large insured depository institution, the performance score

(which explicitly takes into consideration the risks attributable to

different categories and concentrations of assets, different categories

and concentrations of liabilities, and many other relevant factors

regarding loss) . . . [combined with the other scorecard criteria]

reasonably represent both the probability that the [Deposit Insurance

Fund] will incur a loss with respect to the institution and the likely

amount of any such loss.

76 Fed. Reg. at 10701. While BANA claims this is merely a “boilerplate recitation of the statutory

criteria,” ECF No. 376-2, at 4, the court does not agree. Rather, the court reads this explanation

as offering a “rational connection,” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43, between the

aims of the statute—assessing the “probability” and “likely amount” of loss to the Deposit

Insurance Fund, 12 U.S.C. § 1817(b)(1)(C)—and the use of the performance score, which accounts

for various kinds of risks.

Statistical models and engagement with commenters. The “rational connection” between

the HCI scorecard and the FDIC’s mandate to consider the risk of loss to the Deposit Insurance

Fund when setting assessment rates is further supported by the FDIC’s validation methods and

data, which indicate that the HCI scorecard measures exactly what it sets out to measure. BANA

contests the robustness of the FDIC’s validation measures, arguing that the HCI scorecard lacked

a sufficient evidentiary basis because its validation relied on “flawed and dimly explained

statistical models.” ECF No. 367-2, at 24. In BANA’s view, “the ‘expert judgment rankings’”

that were used to validate the HCI scorecard “were nothing more than the personal views of ‘a

22

small group of FDIC staff,’ . . . as to which large banks were ‘risky.’” ECF No. 367-2, at 31

(quoting ECF No. 165, at 18-19; ECF No. 165-2, at 5). BANA further argues that “[t]he FDIC

was required to provide commenters a complete description of its models and their methodology,

and then ‘further opportunity for comment.’” Id. at 33 (quoting Chamber of Com. v. Sec. & Exch.

Comm’n, 443 F.3d 890, 901 (D.C. Cir. 2006)). In BANA’s view, the FDIC’s appendices

supporting the proposed rule were “inadequate” because they “merely explained how the models

worked at a very high level of generality[] or listed their purported results.” ECF No. 367-2,

at 32-33; see Fed. Reg. at 10689, 10720-22, 10727-31.

The FDIC responds that it provided sufficient notice of the methodology it used to develop

the scorecards: “[i]t published two separate notices of proposed rulemakings,” “explained that it

fashioned the performance score using a statistical model that predicted the ‘rank ordering of risk

for large institutions’ ‘based on a consensus view of staff analysts’ . . . following their review of

‘information available through the FDIC’s Large Insured Depository Institution (LIDI) program’

of the relative riskiness of large banks,” and “fully disclosed and explained the methodology and

results of the statistical analysis it used to verify that the selected risk measurements identified by

the expert judgment rankings were correlative and predictive of the risk of bank failure.” ECF

No. 372-2, at 54; 75 Fed. Reg. at 23518, 23548-54, 72614 n.11. The court agrees that the FDIC’s

validation methods were sufficiently robust, and that the FDIC provided sufficient notice of its

methodology to the public.

Courts must not “‘second-guess’ an agency’s [technical] analysis, but will uphold

regulations based on such an analysis if the agency ‘has established in the record a reasonable basis

for its decision.’” In re Core Commc’ns., Inc., 455 F.3d 267, 279 (D.C. Cir. 2006) (quoting Nat’l

Wildlife Fed’n v. Env’t Prot. Agency, 286 F.3d 554, 565 (D.C. Cir. 2002)). “‘[A]n agency’s

23

predictive judgments about areas that are within the agency’s field of discretion and expertise’ are

entitled to ‘particularly deferential’ review, as long as they are reasonable.” Milk Indus. Found. v.

Glickman, 132 F.3d 1467, 1478 (D.C. Cir. 1998) (quoting Int’l Ladies’ Garment Workers’ Union

v. Donovan, 722 F.2d 795, 821 (D.C. Cir. 1983)). Indeed, courts “can reverse only if the model is

so oversimplified that the agency’s conclusions from it are unreasonable.” Small Refiner Lead

Phase-Down Task Force v. Env’t Prot. Agency, 705 F.2d 506, 535 (D.C. Cir. 1983). The agency

need only “examine the relevant data and articulate a satisfactory explanation for its action.” State

Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc., 371 U.S. at 168).

The court finds that the FDIC provided a reasonable basis for its decision to utilize expert judgment

rankings as a validation measure for its scorecards.

The 2011 Rule explains in various places the factors that made the FDIC’s reliance on its

expert judgment rankings sufficiently reasonable. First, the data indicates that the measure was a

reasonably reliable one: “[a]ll but one of the risk measures showed a statistically significant

correlation at either the five- or one-percent level across all four years examined, with the

remaining factor showing a statistically significant correlation for two years.” ECF No. 372-2,

at 51; see 76 Fed. Reg. at 10729. The FDIC additionally noted the limitations of its analysis,

admitting that “any statistical analysis is necessarily backward looking and that risks may arise in

the future that are not adequately captured in the scorecard” but that, regardless, “the FDIC feels

that the proposed framework is more comprehensive and reduces the likelihood of such an

occurrence compared to the current system.” 76 Fed. Reg. at 10703. Finally, the FDIC

satisfactorily explains the overall purpose of the expert rankings—use in a regression model to

help the FDIC determine “the risk measures included in the performance score and the weights

assigned to those measures.” Id. at 10702-03.

24

The court also disagrees with BANA’s complaint that the FDIC did not provide enough

notice of its methodology. ECF No. 367-2, at 32-33. An agency’s notice of its methodology “is

sufficient ‘if it affords interested parties a reasonable opportunity to participate in the rulemaking

process,’ and if the parties have not been ‘deprived of the opportunity to present relevant

information by lack of notice that the issue was there.’” Am. Radio Relay League, Inc. v. Fed.

Commc’ns Comm’n, 524 F.3d 227, 236 (D.C. Cir. 2008) (quoting WJG Tel. Co. v. Fed. Commc’ns

Comm’n, 675 F.2d 386, 389 (D.C. Cir. 1982)).

As the 2011 Rule explains, “Appendix 2 contains the detailed description of the scorecard

model, the result of statistical analysis, and the derivation of weights.” ECF No. 372-2, at 54

(quoting 76 Fed. Reg. at 10702); see 76 Fed. Reg. at 10727-31 (Appendix 2). And, in response to

commenters, “the FDIC meaningfully responded by fully disclosing the validation of its

expert-judgment rankings and scorecard with a separate independent verification method: the

bank-failure model.” ECF No. 372-2, at 55; see 76 Fed. Reg. at 10703, 10730, 10732.

The court also finds unconvincing BANA’s related argument that the FDIC “failed to make

public basic methodological information such as: (1) whether staff considered the statutory

criteria; (2) which specific ‘financial performance metrics’ staff used; (3) how staff went about

ranking banks using those metrics; or (4) what assumptions staff used in that process,” ECF

No. 376-2, at 6, because the exclusion of this information did not actually impede commenters’

abilities to analyze and critique the FDIC’s statistical models. The data provided by the FDIC

sufficiently “afford[ed] interested parties a reasonable opportunity to participate in the rulemaking

process,” and the information provided in no way “deprived [commenters] of the opportunity to

present relevant information by lack of notice that the issue was there.” Am. Radio Relay League,

Inc., 524 F.3d at 236 (quoting WJG Tel. Co., 675 F.2d at 389). Commenters were provided with

25

enough information to evaluate the FDIC’s use of expert judgment rankings, as well as the

performance score more broadly—and indeed, they did provide comments pointing out the

problems they perceived. 76 Fed. Reg. at 10703. The FDIC then reasonably responded to these

concerns by referring commenters to the rule’s appendices, which provided more granular data,

and it further justified its reliance on the scorecards by explaining that, for example, “large

institutions with a total [scorecard] score in the top decile as of year-end 2006 represented a

disproportionately high percentage of failures between 2006 and 2009.” Id.

Change in the HCI concentration measure. Finally, BANA takes issue with the FDIC’s

decision to change the HCI concentration measure from the May 2010 proposed rule—which did

not include counterparty exposures—to the November 2010 proposed rule—which did include

counterparty exposures. Compare 75 Fed. Reg. at 23520/2, 23525 tbl. 12, with 75 Fed. Reg.

at 72612. BANA argues that when the FDIC ultimately published the final 2011 Rule, it failed to

explain why it had abandoned the May 2010 measure, explaining only that “recent experience

shows that the concentration of a highly complex institution’s exposures to a small number of

counterparties . . . significantly increases the institution’s vulnerability to unexpected market

events.” ECF No. 367-2, at 35 (quoting 76 Fed. Reg. at 10,696/2). The FDIC counters that, in

effect, BANA is challenging the November 2010 proposed rule for not being a “logical outgrowth”

of the May 2010 proposed rule, but that there is no requirement that a proposed rule be a “logical

outgrowth” of another proposed rule. ECF No. 372-2, at 57. BANA responds that “the

logical-outgrowth doctrine has nothing to do with this case” and that it does not challenge the

changes between the proposed rules, but rather “the FDIC’s failure in the final 2011 Rule to

acknowledge the change in approach and to explain why the new concentration measure was

26

superior to the old one, which the agency continued to use for other large banks.” ECF No. 376-2,

at 8-9. The court finds that the FDIC has the better of the argument.

Final rules must be “logical outgrowth[s]” of proposed rules, a standard which requires that

“interested parties ‘should have anticipated’ that the change was possible, and thus reasonably

should have filed their comments on the subject during the notice-and-comment period.” CSX

Transp., Inc. v. Surface Transp. Bd., 584 F.3d 1076, 1080 (D.C. Cir. 2009) (quoting Ne. Md. Waste

Disposal Auth. v. Env’t Prot. Agency, 358 F.3d 936, 952 (D.C. Cir. 2004)). But the “logical

outgrowth” requirement applies only to final rules, not proposed rules. See id. And courts “do not

have authority to review proposed rules.” In re Murray Energy Corp., 788 F.3d 330, 334

(D.C. Cir. 2015).

The court agrees with the FDIC that BANA is effectively challenging the November 2010

proposed rule for not being a “logical outgrowth” of the May 2010 proposed rule. It is indeed true,

as BANA points out, that the concentration measure for HCIs changed between the two proposed

rules. But proposed rules are not “final agency actions” that this court has authority to review.

The 2011 Rule was a “logical outgrowth” of the November 2010 proposed rule, and that is all that

the law requires. CSX Transp., Inc., 584 F.3d at 1080. Thus, the FDIC’s decision to change its

HCI concentration measure from the May 2010 proposed rule to the November 2010 proposed

rule was not arbitrary and capricious.

* * *

For the above reasons, the court concludes that the 2011 Rule was within the scope of the

authority delegated to the FDIC by the FDIA. The court additionally finds that the FDIC complied

with the APA because it exercised “reasoned decisonmaking” when it decided to use banks’

performance scores in the HCI scorecard because it “articulate[d] a satisfactory explanation” that

27

explained the “rational connection” between the performance score and a bank’s likelihood of

incurring a loss to the Deposit Insurance Fund, State Farm Mut. Auto. Ins. Co., 463 U.S. at 43

(quoting Burlington Truck Lines, Inc., 371 U.S. at 168), because its decision to use the scorecards

was backed up by reasonable validation techniques, and because the public had the information

necessary to engage in robust notice-and-comment.

B. BANA’s Liability Under the 2011 Rule

Having concluded that the 2011 Rule was valid, the court now turns to the core question in

this case: whether BANA is liable for failing to comply with the 2011 Rule as it was understood

by the FDIC. Squarely at issue are two paragraphs in the rule’s appendix, which are meant to

define “Top 20 Counterparty Exposure” and “Largest Counterparty Exposure”—two key

measures in the HCI scorecard. The first provision provides that the “Top 20 Counterparty

Exposure” measure is the:

Sum of the total exposure amount to the largest 20 counterparties (in

terms of exposure amount) divided by Tier 1 capital and reserves.

Counterparty exposure is equal to the sum of Exposure at Default

(EAD) associated with derivatives trading and Securities Financing

Transactions (SFTs) and the gross lending exposure (including all

unfunded commitments) for each counterparty or borrower at the

consolidated entity level.

76 Fed. Reg. at 10721 (emphasis added). The second explains that the “Largest Counterparty

Exposure” measure is:

The amount of exposure to the largest counterparty (in terms of

exposure amount) divided by Tier 1 capital and reserves.

Counterparty exposure is equal to the sum of Exposure at Default

(EAD) associated with derivatives trading and Securities Financing

Transactions (SFTs) and the gross lending exposure (including all

unfunded commitments) for each counterparty or borrower at the

consolidated entity level.

28

Id. (emphasis added). While the parties agree that BANA was required to report these two

counterparty exposure measures at the “consolidated entity level” in their quarterly call reports,

they disagree about what that key phrase means.

The FDIC argues that “[b]y instructing HCIs to report their counterparty exposures ‘for

each counterparty or borrower’ at the ‘consolidated entity level,’ the 2011 Rule is clear that an

HCI must report its exposures to all members of a corporate family (each counterparty or borrower)

at the position (level) at which those exposures are joined together into one identifiable whole

(consolidated entity).” ECF No. 364, at 18. In the FDIC’s view, the “plain meaning of

[consolidated entity level]” is therefore unambiguously “the level at which all members of a

corporate family are consolidated into a single entity—that is, the ultimate parent level.” Id.at 17.

In other words, the FDIC interprets “consolidated entity level” to require banks to consolidate up

to the ultimate parent level on the counterparty side of the ledger. While the FDIC principally

argues that the court should look to the plain meaning of “consolidated entity level,” it also

describes the phrase as a “term of art” and encourages the court to adopt the definition from a

program administered by the Federal Reserve Bank of New York that predated the 2011 Rule. See

id. at 19 (“When a term of art is ‘obviously transplanted from another legal source,’ it ‘brings the

old soil with it.’” (quoting George v. McDonough, 596 U.S. 740, 746 (2022))).

In BANA’s view, “consolidated entity level” is a “technical” term of art—rather than a

regulatory term of art—and its meaning should be gleaned from technical dictionaries and

principles. ECF No. 376-2, at 23-24; ECF No. 367-2, at 10. Relying on principles of accounting,

BANA posits that “the best reading of the requirement to report exposures ‘for each counterparty

or borrower at the consolidated entity level’ is that HCIs should cancel out intra-company

transactions using consolidation accounting and, together with the HCIs’ own subsidiaries, report

29

exposures to each counterparty individually.” ECF No. 367-2, at 61 (emphases omitted). In other

words, BANA reads the disputed language as requiring consolidation only on its side of the ledger.

Consistent with that understanding, BANA consolidated its own exposures to a given counterparty

with the exposures of its own subsidiaries rather than consolidating its counterparties’ exposures

up to the ultimate parent level. See ECF No. 376-2, at 23 (“[I]f BANA loaned $1 million to

Counterparty 1, and BANA’s subsidiary also loaned another $1 million to Counterparty 1, then

consolidation accounting requires BANA to report a $2 million exposure.”).

When a regulation is “genuinely ambiguous,” Kisor v. Wilkie, 588 U.S. 558, 574 (2019), a

court may defer to an agency’s “reasonable” interpretation of that regulation, id. at 576. However,

“before concluding that a rule is genuinely ambiguous, a court must exhaust all the ‘traditional

tools’ of construction.” Id. at 575 (quoting Chevron U.S.A. Inc., 467 U.S. at 843 n.9, overruled by

Loper Bright, 603 U.S. 369 (2024)). This means that the “court must ‘carefully consider[]’ the

text, structure, history, and purpose of a regulation, in all the ways it would if it had no agency

[interpretation] to fall back on.” Id. (first alteration in original). “[O]nly when that legal toolkit is

empty and the interpretive question still has no single right answer can a judge conclude that it is

‘more [one] of policy than of law.’” Id. (second alteration in original) (quoting Pauley v.

BethEnergy Mines, Inc., 501 U.S. 680, 696 (1991)). But where a court finds no ambiguity, “[t]he

regulation then just means what it means—and the court must give it effect, as the court would

any law.” Id. Upon consideration of the text, context, history, and purpose of the 2011 Rule, the

court concludes that its use of “consolidated entity level” is unambiguous and requires

consolidation at the ultimate parent level on the counterparty side of the ledger.

30

1. The meaning of “consolidated entity level” is unambiguous

Text and context. The court again begins with the text. As a threshold matter, the court

notes that “[o]rdinary meaning is of limited utility . . . when determining the proper interpretation

of a [technical] term.” Teva Pharms. USA, Inc. v. U.S. Food & Drug Admin., 514 F. Supp. 3d 66,

99 (D.D.C. 2020) (quoting ViroPharma, Inc. v. Hamburg, 898 F. Supp. 2d 1, 19 (D.D.C. 2012)).

Therefore, “‘where a statutory or regulatory term is a technical term of art, defined more

appropriately by reference to a particular industry usage than by the usual tools of statutory

construction,’ [a court] will employ that industry usage.” In re Pharm. Indus. Average Wholesale

Price Litig., 582 F.3d 156, 168 (1st Cir. 2009) (quoting United States v. Lachman, 387 F.3d 42,

53 (1st Cir. 2004)); see La. Pub. Serv. Comm’n v. Fed. Commc’ns Comm’n, 476 U.S. 355, 372

(1986) (“[T]echnical terms of art should be interpreted by reference to the trade or industry to

which they apply[.]”). 7 In interpreting the text, the court therefore looks to technical resources in

order to evaluate what the phrase “consolidated entity level” would have communicated to the

average industry member.

The Oxford Dictionary of Accounting defines “consolidation” as “[t]he process of

combining and adjusting financial information from the individual financial statements of a parent

undertaking and its subsidiaries to prepare consolidated financial statements . . . [that] present

financial information for the group as a single economic entity.” Consolidation, A Dictionary of

7

“[T]his canon of construction requires the disputed term to actually be a technical term of art.”

In re Pharm. Indus. Average Wholesale Price Litig., 582 F.3d at 168 (quoting Lachman, 387 F.3d

at 53); cf. Kennecott Corp. v. Env’t Prot. Agency, 684 F.2d 1007, 1017 (D.C. Cir. 1982) (finding

that “nonferrous” is neither a term of art nor a technical term); Am. Legion v. Derwinski, 54 F.3d

789, 796 (D.C. Cir. 1995) (finding that “results” is neither a term of art nor a technical term).

Because “consolidated entity level” is not a phrase “of common parlance,” Am. Legion, 54 F.3d

at 796, the court concludes that it is a technical term.

31

Accounting, Oxford University Press (4th ed. 2010) (emphases added). 8 According to the Oxford

Handbook of International Financial Terms, to “consolidate” is to “group[] the accounts of

different legal entities so that the whole position, the consolidated position can be treated as a

whole.” Consolidate, The Handbook of International Financial Terms, Oxford University Press

(1st ed. 1997) (emphasis added). 9 This process “applies to subsidiaries which are more than 50%

owned by the parent or holding company.” Id. The Financial Accounting Standards Board, which

“establishes financial accounting and reporting standards for public and private companies and

not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP)”10

states in its master glossary that a “consolidated group” is “a parent and all its subsidiaries.”

Consolidated Group, Master Glossary, Financial Accounting Standards Board. 11 It also defines

“consolidated financial statements” as “[t]he financial statements of a consolidated group of

entities that include a parent and all its subsidiaries presented as those of a single economic

entity.” Consolidated Financial Statements, Master Glossary, Financial Accounting Standards

Board (emphasis added). 12 Finally, an “entity” is simply “[t]he unit for which accounting records

are maintained and for which financial statements are prepared.” Accounting Entity, A Dictionary

of Accounting, Oxford University Press (4th ed. 2010). 13

Taken together, these definitions of “consolidate,” “consolidated,” and “entity”—gathered

from various industry-specific resources—all paint a similar picture: when “consolidate” is used

8

Available at https://perma.cc/YW8K-JQFD.

9

Available at https://perma.cc/QMA9-9ET3.

10

Available at https://perma.cc/JV7X-LXMN.

11

Available at https://perma.cc/3BAN-KVD5.

12

Available at https://perma.cc/3BAN-KVD5.

13

Available at https://perma.cc/2B95-D5WM.

32

in an accounting context, it refers to grouping a parent and its subsidiaries so that the “whole”

financial position of the unit may be assessed. See Consolidate, The Handbook of International

Financial Terms, Oxford University Press (1st ed. 1997). This “whole” position, which includes

a parent and its subsidiaries, must necessarily be the ultimate parent level.

With this understanding in mind, the court looks at the context in which this language

appears in the 2011 Rule. Specifically, the rule explains that the Top 20 Counterparty Exposure

and Largest Counterparty Exposure were added to the HCI scorecard “because recent experience

shows that the concentration of a highly complex institution’s exposures to a small number of

counterparties . . . significantly increases the institution’s vulnerability to unexpected market

events . . . [and] the top 20 counterparty exposure and the largest counterparty exposure . . .

capture this risk.” 76 Fed. Reg. at 10696. This additional context should have informed regulated

parties that the FDIC was focused on measuring exposures to each counterparty at the

counterparty’s ultimate parent level: if a “small number of counterparties” were “significantly

increas[ing]” institutional vulnerabilities, this implies that the counterparties were being assessed

at the ultimate parent level—otherwise, a small number of counterparties could not have the

“significant[]” impact on institutional vulnerability.

The court also notes that the FDIC’s understanding of “consolidated entity level” is

consistent with that term’s use in other areas of the industry. For example, in April 2012, the

Commodity Futures Tradition Commission (“CFTC”) promulgated a final rule that required risk

management at the “consolidated entity level” because “a top level company may be in the best

position to evaluate risk due to its organization-wide view.” 77 Fed. Reg. 20128, 20173 (Apr. 3,

2012). While that rule did not define “consolidated entity level,” no regulated party questioned

this term during the rulemaking process. The term “consolidated entity level” was also used in a

33

2014 Rule proposed by a variety of financial regulatory agencies, including the FDIC. 79 Fed.

Reg. 57348, 57366 (Sept. 24, 2014). That regulation also does not define the term, although it

does explain how it would apply by way of a hypothetical about how to consolidate to the

counterparty’s parent level. Id. Given this regulatory landscape, the court comfortably concludes

that the term “consolidated entity level” was intelligible to industry members on its face. 14

The FDIC’s understanding of “consolidated entity level” is further supported by its later

rulemaking materials, including its June 2011 and March 2012 Call Report Instructions and its

December 2011 Notice. 15 In the June 2011 Call Report Instructions, the FDIC reiterated the

language of its 2011 Rule, defining “counterparty exposure” as “the sum of [two types of

exposures] for each counterparty or borrower at the consolidated entity level of the counterparty.”

ECF No. 367-2, at 9 (emphasis added) (quoting 76 Fed. Reg. at 10721). Later that year, in a

December 2011 Notice, the FDIC responded to industry comments about the two counterparty

exposure measures and elaborated further on its expectations for reporting. 76 Fed. Reg. at 77322.

Notably, the FDIC specifically addressed a concern, put forward by three bankers’ organizations,

14

BANA argues that these regulations “contain[] definitions and explanations that the 2011 Rule

does not, which simply underscores that the phrase ‘consolidated entity level,’ by itself, does not

require reporting exposures at the ultimate parent level.” ECF No. 367-2, at 58; see ECF

No. 376-2, at 24. The court disagrees. Taking the CFTC rule as an example, the rule noted that

risk management should be done at the consolidated entity level because “a top level company

may be in the best position to evaluate risk due to its organization-wide view.” 77 Fed. Reg.

at 20173. That does nothing to define “consolidated entity level,” but instead explains why such

consolidation is warranted. In this way, the CFTC rule is no different than the 2011 Rule, in which

the FDIC explained that consolidation was warranted because “a highly complex institution’s

exposures to a small number of counterparties . . . significantly increases the institution’s

vulnerability to unexpected market events . . . [and] the top 20 counterparty exposure and the

largest counterparty exposure . . . capture this risk.” 76 Fed. Reg. at 10696.

15

These documents went through notice-and-comment rulemaking, see, e.g., 76 Fed. Reg. 10688;

76 Fed. Reg. 77315, and therefore carry the force of law, see Aid Ass’n for Lutherans v. U.S. Postal

Serv., 321 F.3d 1166, 1174 (D.C. Cir. 2003) (“[T]he [agency]’s disputed regulations in this case

were adopted pursuant to notice and comment rulemaking and undoubtedly were intended to carry

the force of law.”).

34

that “the term ‘legal consolidated entity,’ as used in th[e] definition in relation to a counterparty,

should be clarified.” Id. In response to the comment, the FDIC stated that it “continues to believe

that, for the purposes of calculating deposit insurance premiums, highly complex institutions

should report counterparty credit exposure on a consolidated entity basis (legal consolidated

entity) . . . [and] that highly complex institutions should have the ability to aggregate exposures

arising from financial contracts with entities within a legal consolidated entity and report the

exposure as outlined in the final rule.” Id. The FDIC further noted that the absence of a particular

proposed system did not “preclude institutions from internally aggregating their exposures to

entities within a legal consolidated entity” as the rule instructed. Id. Thus, although the court

concludes that the 2011 Rule’s use of “consolidated entity level” was sufficiently clear given

industry understandings of the constitutive words, any lingering uncertainty should have been

resolved by the December 2011 Notice’s clarification that reporting counterparty exposures on a

“consolidated entity basis” meant reporting at the level of the “legal consolidated entity”—

especially given the FDIC’s further note that such reporting required “aggregat[ing] exposures

arising from financial contracts with entities within a legal consolidated entity.” Id.

The FDIC provided further clarity in its updated March 2012 Call Report Instructions,

which instructed regulated parties to report several measures, including their Top 20 Counterparty

Exposure and Largest Counterparty Exposure on a “fully consolidated basis.” ECF No. 286-2. To

do something “fully” is to do it “completely.” Fully, Merriam-Webster’s Collegiate Dictionary

(10th ed. 1993). There is no conceivable way to consolidate “fully” without “completely”

consolidating the subsidiaries up to the parent level. Thus, while any reasonably informed industry

member should have been able to properly comprehend what the FDIC meant by “consolidated

entity level” based purely on the technical meanings of “consolidate” and “entity,” see supra

35

pp. 31-33, the March 2012 Call Report Instrnctions made it clear beyond argument that

consolidation must occur and be reported at the ultimate parent level of the counterparty.

BANA offers several points in suppo1t of its argument that the requirement to repoit at the

"consolidated entity level" was unclear, but each fails upon closer scrntiny. First, BANA points

out that . ECF

No. 367-2, at 66. This, in BANA's view, proves that "consolidated entity level" was an ambiguous

tenn. Id. This might help BANA i

_ , 16

ECF No. 248-4 ,I 62.

Id. ,I 63.

16

Pursuant to an agreement previously reached by the parties in this case and the eight other HCis,

identifying info1mation in documents regarding the other HCis is redacted and the HCis are

refeITed to by anonymous code names. See ECF No. 248-4, at 16 n.1.

36

with the publication of the December 2011 Notice, 76 Fed. Reg. at 77322,

which provided additional clarification about the meaning of the 2011 Rule. 17

Next, BANA offers its own reading of the 2011 Rule in an attempt to provide a plausible

alternative to the FDIC's interpretation. 18 Like the court, BANA relies upon technical definitions

of relevant tenns- specifically as they are used in the consolidation accounting context. See ECF

No. 376-2, at 23-24. As BANA explains, "consolidation" in this context '"requires elimination of

intra-entity ti·ansactions and balances' ... which cancels out exposures among parents and

subsidiaries, and adds up exposures that parents and subsidiaries have to the same counte1paiiies."

Id. at 23. In practice, this meant that BANA was consolidating its own exposures with those of its

subsidiaries, but that it failed to consolidate its counte1paiiies with their subsidiai·ies when it

reported exposures.

The ti·ouble with this reading is that it does not square with the text of the rnle, which

explains that counte1paiiy exposure is "the sum of [three kinds of exposure] for each counte1pa1iy

or boITower at the consolidated entity level." 76 Fed. Reg. at 10721. BANA claims that its process

of not consolidating its counte1paiiy exposures was specifically consistent with the text's

18

Even if BANA now argues that it understood the FDIC's rnle differently, it originally inte1p reted

it in line with the FDIC's definition of "consolidated entity level." BANA data analyst Brian

Wood testified in Januai·y 2012 that "[t]he request for data at the ' consolidated entity level of the

counte1p a1iy' was originally inte1p reted as an ultimate pai·ent level." ECF No. 364, at 21 (quoting

ECF No. 287-25, at 3). BANA's 30(b)(6) co1p orate representative, John James, confinned this,

testifying that "BANA, in fact, originally inte1preted the consolidation requirement to require

consolidation up to the ultimate pai·ent level in 2Q and 3Q 2011." Id. (quoting ECF No. 286-27,

at 326:16-20).

37

command to report exposures “for each counterparty or borrower.” ECF No. 376-2, at 23

(emphasis added). However, this reading completely ignores the phrase that immediately follows

“for each counterparty or borrower”: “at the consolidated entity level.” 76 Fed. Reg. at 10721. In

effect, BANA gives “consolidated entity level” no effect, reading it out of the regulation altogether.

It is one thing for BANA to argue that the meaning of “consolidated entity level” is unclear while

highlighting its attempts to understand and comply with the phrase; it is another altogether for

BANA to explain that its preferred interpretation simply ignores the phrase at issue. Because

courts must “give effect, if possible, to every clause and word” of statutes and regulations, Sierra

Club v. Env’t Prot. Agency, 536 F.3d 673, 680 (D.C. Cir. 2008) (quoting United States v.

Menasche, 348 U.S. 528, 538-39 (1955)), BANA’s omission of a key term in its interpretation

makes its argument a non-starter.

Finally, BANA argues that textual changes in the 2014 Rule show that the language in the

2011 Rule was unclear. See ECF No. 367-2, at 20-21; ECF No. 376-2, at 24-25. It is true that the

FDIC changed some of the language regarding the exposure measures in its 2014 Rule.

Specifically, while the 2014 Rule used the same HCI scorecard as the 2011 Rule, in its

explanations of the Top 20 Counterparty Exposure and Largest Counterparty Exposure measures,

the FDIC omitted the term “consolidated entity level” and instead provided:

The total exposure amount is equal to the sum of the institution’s

exposure amounts to one counterparty (or borrower) for derivatives,

securities financing transactions (SFTs), and cleared transactions,

and its gross lending exposure (including all unfunded

commitments) to that counterparty (or borrower). A counterparty

includes an entity’s own affiliates. Exposures to entities that are

affiliates of each other are treated as exposures to one counterparty

(or borrower).

79 Fed. Reg. 70427, 70438 (Nov. 26, 2014). BANA argues that the FDIC’s “decision to rewrite

the [r]ule in 2014 confirms that confusion abounded prior to that amendment and that the

38

2011 Rule did not provide regulated parties with fair notice of what the FDIC now says the [r]ule

required.” ECF No. 376-2, at 2. The FDIC counters that “[t]he 2014 Rule is irrelevant[] [because]

it cannot retroactively change the 2011 Rule’s meaning,” ECF No. 372-2, at 11, and that, in any

case, the changes in the 2014 Rule were “‘stylistic,’ not ‘substantive,’” id. (quoting ECF

No. 287-3, at 66:4-13, 67:18-70:2). In BANA’s view, however, this is “beside the point” because

“the 2014 Rule confirms that the 2011 Rule never had the meaning that the FDIC now ascribes to

it—as the agency itself recognized in using completely different language to adopt the new

requirement that it now tries to retroactively impose on BANA.” ECF No. 376-2, at 24.

“[W]hen a legislative or executive body adopts a new clarifying law or rule, it does not

necessarily follow that an earlier version did not have the same meaning.” Baptist Mem’l

Hosp.-Golden Triangle v. Sebelius, 566 F.3d 226, 229 (D.C. Cir. 2009); see Brown v. Thompson,

374 F.3d 253, 259 (4th Cir. 2004) (“A ‘change[] in statutory language need not ipso facto

constitute a change in meaning or effect . . . [and instead may only] make what was intended all

along even more unmistakably clear.’” (quoting United States v. Montgomery County, 761 F.2d

998, 1003 (4th Cir. 1985))). Indeed, if courts understood any revision to the wording of a

regulation as substantively changing its meaning, agencies would be disincentivized from making

improvements to their regulatory language. Here, whether or not the language of the 2014 Rule

might have been clearer than that of the 2011 Rule, the court finds that the language of the

2011 Rule was still sufficiently clear on its own terms. The court therefore declines to view

changes in the 2014 Rule as evidence that the 2011 Rule was unclear.

History and purpose. The FDIC’s interpretation of the 2011 Rule also accords with the

FDIA’s history and purpose. In creating the FDIC, Congress wanted to ensure the solvency of the

banking system in the United States. After the 2008 recession, Congress determined that the

39

FDIC’s regulations did not go far enough in ensuring the stability of the national banking system—

and that this inadequacy was in part driven by a lack of information that made it difficult for the

FDIC to evaluate banks’ vulnerabilities. 76 Fed. Reg. at 10674. In passing the Dodd-Frank Act,

Congress directed the FDIC to reconsider how it assessed banks to make sure assessments were

based on a bank’s total assets. Pub. L. No. 111-203, 124 Stat. 1376, at 1376, 1538; see 76 Fed.

Reg. at 10674. As a result, the FDIC reevaluated its assessment metrics to, among other things,

“revise the large insured depository institution assessment system to better differentiate for risk

and better take into account losses from large institution failures that the FDIC may incur.” Id.

at 10672. To better account for the fact “that the concentration of a highly complex institution’s

exposures to a small number of counterparties . . . significantly increases the institution’s

vulnerability to unexpected market events,” id. at 10696, the FDIC included in the 2011 Rule an

assessment scorecard for HCIs to “capture this risk,” id.

The FDIC’s interpretation of the 2011 Rule, which requires that an HCI consolidate its

exposure to its counterparties, plainly achieves the aim of protecting against the heightened risk

posed by “the concentration of a [HCI]’s exposures to a small number of counterparties.” Id.

at 10672. BANA’s view does not—nor does BANA try to explain how its interpretation best

achieves the aims of the FDIA and the Dodd-Frank Act.

What is more, evaluating institutional risk in the way the FDIC did was not a new concept

at the time the 2011 Rule was promulgated. In 2008, the Federal Reserve Bank of New York

(“FRBNY”) began administering a program called the Top 20 Counterparty Project. ECF No. 360,

at 4; 19 ECF No. 364, at 6. The aim of the program was to “highlight concentrations and changes

in bilateral exposure relationships that warrant further attention,” thereby enabling banks to better

19

Citations to this filing are to the PDF page numbers, rather than to its internal pagination.

40

monitor the “levels, sensitivities, and . . . direction of counterparty exposure” and “execute

appropriate risk mitigation and capital conservation transactions” when needed. ECF No. 360,

at 7. To this end, program participants, including BANA’s parent company Bank of America

Corporation (“BAC”), and the parent companies of several other HCIs, aggregated and reported

their counterparty exposures at the “consolidated entity level.” ECF No. 364, at 6. Aggregation

at the “consolidated entity level” was defined as “aggregation across all connected entities for

which the parent provides an explicit guarantee or implicit support for reputational or other

reasons.” ECF No. 360, at 14.

To be sure, the parties dispute the relevance of the FRBNY program. The FDIC argues

that the program’s definition of “consolidated entity level” is necessary context for the court to

consider as it determines the meaning of the same term in the 2011 Rule. See ECF No. 364, at 19.

BANA responds that the 2011 Rule offers none of the explanation of “consolidated entity level”

that the FRBNY’s instructions did—and that, in any case, the 2011 Rule makes no mention of the

FRBNY program or its definition of “consolidated entity level.” ECF No. 367-2, at 12-13. The

court need not weigh into that dispute because it is not looking to the FRBNY to define

“consolidated legal entity” in the FDIC’s 2011 Rule. Instead, the court merely notes that the

financial industry writ-large was concerned with the heightened risks of having an institution’s

risks highly concentrated in a small number of counterparties. This indicates that the FDIC’s

interpretation of the 2011 Rule best fits with the rule’s purpose.

Accordingly, based on the regulatory landscape at the time the 2011 Rule was being

developed, the FDIC’s stated purposes in promulgating the 2011 Rule, and the fact that other

agencies equated reporting at the “consolidated entity level” with reporting at the ultimate parent

41

level, the court concludes that the relevant history and the purpose of the 2011 Rule support

interpreting “consolidated entity level” to mean “ultimate parent level.”

* * *

Because the text, context, history, and purpose of the 2011 Rule all support the reading that

counterparty exposures must be consolidated at the ultimate parent level, this court concludes that

the meaning of the rule is not ambiguous. 20

2. BANA’s fair-notice defense fails

BANA argues, as an affirmative defense, that because the FDIC failed to provide fair notice

of the 2011 Rule, “BANA cannot be held retroactively liable” for its failure to follow it. ECF

No. 367-2, at 37. BANA posits that “[r]egardless of whether the FDIC’s interpretation is

defensible as an interpretive matter, due process requires that agencies provide regulated parties

with fair notice of what the law requires before they impose liability for past conduct.” Id. at 4.

In BANA’s view, because the 2011 Rule caused industry-wide “confusion about the language at

issue,” it did not sufficiently provide fair notice. Id. at 65. In response, the FDIC rests on the plain

language of the rule, arguing that BANA received “notice of the [FDIC]’s interpretation in the

most obvious way of all: by reading the regulations.” Gen. Elec. Co. v. Env’t Prot. Agency, 53

F.3d 1324, 1329 (D.C. Cir. 1995).

“A fundamental principle in our legal system is that laws which regulate persons or entities

must give fair notice of conduct that is forbidden or required.” Fed. Commc’ns Comm’n v. Fox

20

The court recognizes that the FDIC “does not request that its interpretation be accorded [Kisor]

deference.” ECF No. 364, at 22. However, had the court found the 2011 Rule ambiguous, the

FDIC’s reading would be entitled to deference because it is “reasonable,” the “character and

context of the agency interpretation entitle[] it to controlling weight,” the interpretation was an

official one made by the FDIC, the interpretation is related to the FDIC’s expertise, and the

interpretation reflects the FDIC’s “fair and considered” judgment. Kisor, 588 U.S. at 576-79.

42

Television Stations, Inc., 567 U.S. 239, 253 (2012). This protection is especially crucial “[w]here,

as here, hundreds of millions of dollars are at stake.” SNR Wireless LicenseCo, LLC v. Fed.

Commc’ns Comm’n, 868 F.3d 1021, 1046 (D.C. Cir. 2017). Enforcement of an agency regulation

runs afoul of due process requirements if the “regulation under which it is obtained ‘fails to provide

a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it

authorizes or encourages seriously discriminatory enforcement.’” Fox Television Stations, Inc.,

567 U.S. at 253 (quoting United States v. Williams, 553 U.S. 285, 304 (2008)). But, if “by

reviewing the regulations and other public statements issued by the agency, a regulated party acting

in good faith would be able to identify, with ‘ascertainable certainty,’ the standards with which the

agency expects parties to conform, then the agency has fairly notified a petitioner of the agency’s

interpretation.” Gen. Elec. Co., 53 F.3d at 1329. For this reason, fair-notice defenses are not

available in “case[s] where the agency’s interpretation is the most natural one.” NetworkIP, LLC,

v. Fed. Commc’ns Comm’n, 548 F.3d 116, 125 (D.C. Cir. 2008).

The court agrees with the FDIC that, after reading the text of the 2011 Rule and “acting in

good faith,” BANA should have been able to “identify[] with ‘ascertainable certainty,’ the

standards” it was expected to apply. Gen. Elec. Co., 53 F.3d at 1329 (quoting Diamond Roofing

Co. v. Occupational Safety & Health Rev. Comm’n, 528 F.2d 645, 649 (5th Cir. 1976)). As the

court has explained, the text of the 2011 Rule is unambiguous, see supra Part IV.B.1, and therefore

the FDIC’s “interpretation is the most natural one,” NetworkIP, LLC, 548 F.3d at 124.

Accordingly, BANA “received, or should have received, notice of the agency’s interpretation in

the most obvious way of all: by reading the regulations.” Gen. Elec. Co., 53 F.3d at 1329. Upon

consideration of the FDIC’s “other public statements,” id., including multiple sets of Call Report

43

instructions, and the December 2011 notice, the court cannot find that BANA lacked fair notice of

what was required of it.

Additionally, although BANA claims that it was confused about the meaning of the

2011 Rule, it never sought clarification from the FDIC about how it was meant to be followed.

ECF No. 364, at 28. While a failure to seek clarification is not fatal to a fair-notice defense,

especially where a party did not seek clarification because it believed it understood a rule correctly,

see Gen. Elec. Co., 53 F.3d at 1333, the BANA employee responsible for reporting counterparty

exposures under the 2011 Rule testified that she “d[id] not recall whether she [had] read the

2011 Rule, Call Report Instructions, or December 2011 . . . Notice,” ECF No. 267-3 ¶ 67. A key

BANA employee’s failure to read the relevant regulatory materials, combined with BANA’s

general failure to seek clarification from the FDIC, see ECF No. 248-4 ¶¶ 53-55, dooms its fair-

notice defense.

3. BANA’s liability

BANA does not dispute that it failed to pay the $1.12 billion that the FDIC determined it

had underpaid in assessments for 1Q 2011 through 4Q 2014 under the 2011 Rule, instead

challenging the validity of the rule and the FDIC’s interpretation of it. Because the court

determines that the law is not on BANA’s side—concluding that the 2011 Rule was properly

promulgated and that “consolidated entity level” unambiguously means what the FDIC says it

means—BANA is liable to the FDIC for any unpaid assessments the court determines are

“lawfully payable.” 12 U.S.C. § 1817(g)(1).

C. Remedies

Having established that BANA is liable for underpaying its assessments, the court turns to

the question of remedy. The FDIC seeks both the unpaid assessments under 12 U.S.C.

44

§ 1817(g)(1) and disgorgement. See ECF No. 364, at 28-51. BANA counters that the FDIC’s

claims for unpaid assessments for certain quarters are barred by the statute of limitations and that

the FDIC is not entitled to the equitable remedy of disgorgement. See ECF No. 367-2, at 37-54,

70-79. The court concludes that the FDIC may recover unpaid assessments from 2Q 2013 through

4Q 2014, but that its other requests for relief fail.

1. Statutory remedy

Under the FDIA, the FDIC may “recover from any insured depository institution the

amount of any unpaid assessment lawfully payable by such insured depository institution.”

12 U.S.C. § 1817(g)(1). But, barring certain exceptions, “[a]ny action by the [FDIC] to recover

from an insured depository institution the underpaid amount of any assessment shall be brought

within 3 years after the date the assessment payment was due.” Id. § 1817(g)(2). The FDIC

brought this action in January 2017. ECF No. 1. The parties agree that the FDIC’s claims for

2Q 2013 through 4Q 2014 were brought within the FDIA’s three-year statute of limitations, but

BANA argues that the FDIC’s claims related to 1Q 2012 through 1Q 2013 are untimely. ECF

No. 364, at 37; ECF No. 367-2, at 38. The FDIC raises two arguments in an attempt to save its

claims from 1Q 2012 through 1Q 2013: (1) that the statute of limitations for 2Q 2012 through

1Q 2013 reset when the FDIC issued new invoices to BANA after BANA revised its Call Reports

for those quarters, ECF No. 364, at 38; and (2) that the statute of limitations for 1Q 2012 through

1Q 2013 is tolled under Section 1817(g)(2)(C), id. at 38-47. The court is not convinced by either

argument.

Revised call reports. The FDIC notes that, in March 2015, BANA submitted revised Call

Reports for 2Q 2012 through 1Q 2013 (but not for 1Q 2012). ECF No. 364, at 38. While these

revised reports did not report BANA’s counterparty exposures at the consolidated entity level and

45

are largely irrelevant to the case, the FDIC issued BANA new invoices for its assessments for

2Q 2012 though 1Q 2013 based on the revised Call Reports. Id. Those revised invoices were due

on March 30, 2015, and the FDIC argues that it filed suit within three years of when payment was

due on the revised invoices. Id. The court sees three problems with that argument.

First, the FDIC’s argument conflicts with Norwest Bank Minn. National Ass’n v. Federal

Deposit Insurance Corp., 312 F.3d 447 (D.C. Cir. 2002). In that case, the roles were reversed:

Norwest Bank brought suit against the FDIC seeking a refund of assessments it had overpaid

several years earlier, and the FDIC successfully argued that the claim was time-barred under an

older version of Section 1817(g) which had directed that “[n]o action or proceeding shall be

brought . . . for the recovery of any amount paid to the [FDIC] in excess of the amount due to it,

unless such action or proceeding shall have been brought within five years after the right accrued

for which the claim is made.” Id. at 450 n.3 (second alteration in original) (emphasis added)

(quoting 12 U.S.C. § 1817(g) (2006)). The FDIC argued that because eight years had passed since

it had first made the error leading to Norwest Bank’s overpayment, the whole claim was

time-barred. Id. at 451. The bank made a similar argument to the one the FDIC makes here,

contending that “since each assessment is a separate payment, it [could] recover all payments made

within the preceding five-year period.” Id. at 453; see id. at 452 n.5 (“Norwest argues that each

overpayment creates a new cause of action, and so long as a suit for a particular overpayment is

commenced within five years after overpayment, it is timely.”).

In examining the FDIA, the D.C. Circuit concluded that the “triggering event” for the

statute of limitations was when “the right accrued for which the claim is made.” Id. at 451 (quoting

12 U.S.C. § 1817(g) (2006)). Because later assessments could not change the fact that “the wrong

ha[d] been committed” when the FDIC had made its initial mistake eight years prior, the court

46

concluded that all of the bank’s claims were time-barred. Id. at 451-52. The court further

determined that this was the case even though the bank had not had an “immediate financial

incentive” to raise the claim “at the time the claim accrued,” because allowing later assessments

to restart the limitations clock would “effectively suspend the running of the limitations period.”

Id. at 451, 453. While Section 1817(g) has been amended since Norwest Bank was decided—a

claim must now be brought “within 3 years after the date the assessment payment was due,” id.

§ 1817(g)(2)(B)—the same logic applies because the due date of the assessment payment remains

the “triggering event” that starts the statute-of-limitations clock. Norwest Bank, 312 F.3d at 451.21

Next, even if the FDIC could distinguish Norwest Bank, it cannot escape Section 1817(g)’s

plain language. Section 1817(g)(2)(B) directs that “[a]ny action by the [FDIC] to recover [any

unpaid] assessment shall be brought within 3 years after the date the assessment payment was

due.” Id. (emphases added). For each quarter, there was a deadline by which BANA had to pay

that quarter’s assessment. 22 The fact that BANA later submitted a revised Call Report to correct

an error for a particular quarter does not change the fact that the original assessment deadline had

long since passed. Against this, the FDIC relies on implementing regulations, which provide a

mechanism for “payment adjustments in succeeding quarters” based on “factors [such] as

amendments to prior quarterly reports of condition,” 12 C.F.R. § 327.3(e), to argue that “when a

bank files an amended Call Report that triggers a revised assessment for a prior quarter, the due

21

The court further notes that the FDIC appears to still hold the position it took in Norwest Bank.

See FDIC, Call Report Amendments & the Statute of Limitations, https://perma.cc/7HJ2-5CP3

(explaining that while “any insured depository institution is free to amend Call Reports for periods

outside the statutory limit for the sake of having correct figures on file . . . in order for the [FDIC]

to bill for an underpayment, or for any institution to receive a refund of overpayment, Call Report

amendments must be made within the three-year statute of limitations period”).

22

Assessment payments are “typically are due three months (i.e., 90 days) after the end of a

quarter, and invoices are due 15 days before the payment due date.” ECF No. 372-2, at 27; see 12

C.F.R. § 327.3(b)(1), (2).

47

date for payment of that revised assessment becomes the new ‘date the assessment payment was

due’ under 12 U.S.C. §1817(g)(2)(B).” ECF No. 372-2, at 27. But a regulation cannot change

the plain text of a statute. See Orion Rsrvs. Ltd. P’ship v. Salazar, 553 F.3d 697, 703 (D.C.

Cir. 2009) (“[A] regulation contrary to a statute is void.”). If Congress had wanted the FDIA’s

statute of limitations to account for the possibility of a revised assessments, it would have said so.

Finally, courts routinely reject a party’s effort to tether a stale claim to new developments

to extend the statute of limitations. See Klehr v. A.O. Smith Corp., 521 U.S. 179, 190 (1997)

(explaining that a plaintiff “cannot use an independent, new predicate act as a bootstrap to recover

for injuries caused by other earlier predicate acts that took place outside the limitations period”);

see also Rotella v. Wood, 528 U.S. 549, 554-55 (2000) (similar). That provides the court with an

additional reason to reject the FDIC’s effort to restart the limitations clock based on new invoices.

Gabelli v. Sec. & Exch. Comm’n, 568 U.S. 442, 448-49 (2013).

Section 1817(g)(2)(C). The FDIC also argues that one of the exceptions to

Section 1817(g)(2)(B)’s three-year statute of limitations applies; specifically,

Section 1817(g)(2)(C), which provides that “[i]f an insured depository institution has made a false

or fraudulent statement with intent to evade any or all of its assessment, the [FDIC] shall have until

3 years after the date of discovery of the false or fraudulent statement in which to bring an action

to recover the underpaid amount.” 12 U.S.C. § 1817(g)(2)(C). The FDIC contends that BANA

“made false or fraudulent statements about its counterparty exposures with the intent to evade its

assessments,” which prevented the FDIC from discovering BANA’s wrongdoing until it conducted

an audit in 2016. ECF No. 372-2, at 29. Consequently, the FDIC asks the court to measure the

three-year statute of limitations from the 2016 “date of discovery,” which would render the FDIC’s

48

claims concerning 1Q 2012 through 1Q 2013 timely under Section 1817(g)(2)(C). ECF

No. 372-2, at 29.

BANA vehemently denies that it acted with an intent to evade. ECF No. 367-2, at 38-52.

But it suggests that even if Section 1817(g)(2)(C) applies, the statute of limitations would start

running when “the litigant first knows or with due diligence should know facts that will form the

basis for an action.” ECF No. 367-2, at 39 (quoting Merck & Co. v. Reynolds, 559 U.S. 633, 646

(2010)). In BANA’s view, because the FDIC had the information it needed to “discover” that

BANA was not reporting its counterparty exposures consistent with the 2011 Rule as early as

May 2012, any claims concerning 1Q 2012 through 1Q 2013 would still be time-barred even under

Section 1817(g)(2)(C)’s “intent to evade” exception. ECF No. 367-2, at 39-40.

The court agrees with BANA. Under statutes like Section 1817(g)(2)(C), “[the] cause of

action accrues when the injured party discovers—or in the exercise of due diligence should have

discovered—that it has been injured.” Sprint Commc’ns Co., L.P. v. Fed. Commc’ns Comm’n, 76

F.3d 1221, 1228 (D.C. Cir. 1996). Where a plaintiff argues that it did not discover the injury

because of the defendant’s concealment, it is the defendant’s burden to show that the plaintiff had

sufficient notice. Id. at 1226. Importantly, inquiry notice does not require that “the injured party

has access to or constructive knowledge of all the facts required to support its claim . . . [or] to

calculate its damages.” Id. at 1228. Rather, “[o]nce the prospective plaintiff is on notice that it

might have a claim, it is required to make a diligent inquiry into the facts and circumstances that

would support that claim.” Id. at 1228. And an agency “cannot avoid the statute of limitations by

possessing, but failing to read, the documents that would put them on inquiry notice.” DeBruyne

v. Equitable Life Assurance Soc’y, 920 F.2d 457, 466 n.18 (7th Cir. 1990).

49

In May 2012, after noticing a drop in BANA’s quarterly assessments in 1Q 2012 compared

to 4Q 2011, the FDIC’s Division of Insurance and Research began an investigation into “the

validity of [BANA’s] numbers,” including its counterparty exposures. ECF No. 259-30, at 4.

Because there was doubt that BANA’s “reporting changes [were] legit[imate],” the relevant FDIC

team specifically discussed “following-up with someone about [BANA’s] reported counterparty

numbers.” Id. at 3. In response, Brenda Bruno—a senior FDIC analyst who routinely monitored

BANA—stated that she would “look into these issues along with the others related to BANA.” Id.

Ms. Bruno worked with Chris Cook, the FDIC’s on-site examiner for BANA, to gather information

about the decrease in BANA’s counterparty exposures. See ECF No. 367-5, at 107-14.

Mr. Cook reached out to two individuals at BANA, noting that there had been large drops

in BANA’s Top 20 Counterparty Exposure and the Largest Counterparty Exposure measures

between 4Q 2011 and 1Q 2012 and asking for assistance in gathering information about the reason

for the changes. ECF No. 251-30, at 3. In a follow-up email the next day, Mr. Cook specifically

requested “the data used to fill in the [Call Report] items on counterparty exposure.” Id. at 2.

BANA responded with two one-page spreadsheets detailing its top exposure data for the 4Q 2011

and 1Q 2012 Call Reports, id. at 5-6, which are reproduced below.

50

Above the data on both spreadsheets are two bullets points that say “[e]xposure at the counterparty

level” and “[e]xposure to BANA consolidated legal entity.” Id. at 5-6. The spreadsheets

themselves include several counterparties that clearly have not been consolidated at the ultimate

parent level. See id. For example, three of the top four entries on the December 2011 sheet are

clearly unconsolidated affiliates of each other—“ ”“

,” and “ .” Id.

at 5. Likewise, on the March 2012 spreadsheet, the second and third entries are “

” and “ ”—obviously

unconsolidated affiliates. Id. at 6.

Upon receipt of the spreadsheets, Mr. Cook replied that they were “exactly what [he]

needed to see.” ECF No. 260-5, at 2. He did not inform BANA that it was reporting its data

incorrectly. Mr. Cook then reported back to Ms. Bruno that “[t]he numbers provided for total

exposure and single largest exposure tie back to the C[all] R[eport] submissions.” ECF No. 260-3,

at 3. Importantly, Mr. Cook also wrote: “There was a reduction of of exposure to the

Top 20 between 12.31.11 and 3.31.12. Of that , over was due to reductions in

exposure among . As of 12.31, their largest single

counterparty was to , which was greatly reduced by

3.31.12.” Id. (emphases added). This portion of Mr. Cook’s email made it clear to Ms. Bruno that

the data had not been consolidated at the ultimate parent level of the counterparty—had it been,

BANA would not have been reporting exposures to , nor would its largest single

counterparty be —rather than

. Id.; see

ECF No. 251-30, at 5-6. In her deposition, upon re-examining the spreadsheets, Ms. Bruno

52

admitted that the spreadsheets indicated that BANA was not consolidating at the ultimate parent

level of the counterparty but stated that she had not made that connection in 2012. ECF No. 367-4,

at 252:24-255:22. As a result, Ms. Bruno, like Mr. Cook, failed to inform BANA that it was

reporting its exposures incorrectly.

Based on this information, it is apparent to the court that the FDIC had in its possession

information from which its employees could have concluded that BANA was not consolidating its

counterparties at the ultimate parent level in May 2012. The FDIC cannot argue that it did not

have notice merely because it “fail[ed] to read[] the documents that would put [it] on inquiry

notice.” DeBruyne, 920 F.2d at 466 n.18. Nor can it plausibly argue that it “exercise[d] . . . due

diligence” when it had the relevant information before it—as the result of its own investigation,

no less—but failed to act on it. Sprint Commc’ns Co., 76 F.3d at 1228. Because the FDIC had

inquiry notice beginning in May 2012, its claims regarding underpaid assessments from 1Q 2012

through 1Q 2013 are time-barred even if Section 1817(g)(2)(C)’s intent-to-evade exception

applied. 23

* * *

Because the FDIC’s claims concerning 1Q 2012 through 1Q 2013 are time-barred, the

FDIC may only seek to recoup BANA’s underpayments from 2Q 2013 through 4Q 2014. 24

23

Because the claims are time-barred, the court need not determine whether BANA made “false

or fraudulent statement[s] with the intent to evade.” 12 U.S.C. § 1817(g)(1)(C). However, given

BANA’s repeated disclosures about its reporting method, see supra pp. 50-52, the court is

hard-pressed to understand how its actions indicate an intent to evade.

24

The amount of underpaid assessments for 2Q 2013 through 4Q 2014 is $540,261,499.90. See

ECF Nos. 249-13, 249-14.

53

2. Equitable remedies

In addition to seeking the FDIA’s statutory remedy, the FDIC brings a claim for unjust

enrichment under both federal law and District of Columbia law, arguing that BANA was unjustly

enriched “by receiving the benefit of federal deposit insurance from the FDIC without paying its

fair share of assessments.” ECF No. 364, at 28. As a result, the FDIC maintains that it is entitled

to disgorgement of the profits that BANA made off that money as an equitable remedy. Id.

at 30-31. BANA responds that the FDIC cannot seek equitable relief because Section 1817(g)

provides it with “a remedy ‘as complete, practical[,] and efficient as that which equity could

afford.’” ECF No. 367-2, at 71 (quoting Terrace v. Thompson, 263 U.S. 197, 214 (1923)). That

is especially so, BANA maintains, because the FDIC is entitled to prejudgment interest, which,

“like disgorgement, is to prevent the unjust enrichment of [the] defendant[].” Id. (quoting Sec. &

Exch. Comm’n v. Shaoulian, No. 00-CV-4614, 2003 WL 26085847, at *5 (C.D. Cal. May 12,

2003)). The FDIC replies that its statutory remedy is not adequate because it would not get at

BANA’s ill-gotten gains and thereby deter BANA from future wrongful conduct, ECF No. 364,

at 35-36, and that Section 1817(h)’s savings clause permits it to seek equitable remedies in

addition to statutory remedies, id. at 32-33. The court concludes that the FDIC may not avail itself

of equitable remedies because it has an adequate statutory remedy and nothing in

Section 1817(h)’s savings clause changes that analysis. 25

“It is a ‘basic doctrine of equity jurisprudence that courts of equity should not act . . . when

the moving party has an adequate remedy at law and will not suffer irreparable injury if denied

25

Because the court holds that disgorgement is not available to the FDIC, it need not determine

whether the elements of unjust enrichment—that the “plaintiff conferred a benefit on the

defendant,” that the defendant “retain[ed] th[at] benefit,” and that the “retention of the benefit is

unjust”—are met. Bregman v. Perles, 747 F.3d 873, 876 (D.C. Cir. 2014) (quoting Fort Lincoln

Civic Ass’n, Inc. v. Fort Lincoln New Town Corp., 944 A.2d 1055, 1076 (D.C. 2008)).

54

equitable relief.’” Morales v. Trans World Airlines, Inc., 504 U.S. 374, 381 (1992) (quoting

O’Shea v. Littleton, 414 U.S. 488, 499 (1974)). This principle holds even where the plaintiff is a

government agency. See, e.g., United States v. Bame, 721 F.3d 1025, 1031 (8th Cir. 2013); Fed.

Deposit Ins. Corp. v. Gonzalez-Gorrondona, 833 F. Supp. 1545, 1561 (S.D. Fla. 1993). Likewise,

under District of Columbia law, “[i]t is ‘axiomatic’ that equitable relief will not be granted where

the plaintiff has a complete and adequate remedy at law.” Kakaes v. George Wash. Univ., 790

A.2d 581, 583 (D.C. 2002) (quoting District of Columbia v. Wical Ltd. P’ship, 630 A.2d 174, 184

(D.C. 1993)).

Here, the FDIC has an adequate remedy at law in the form of recouping BANA’s underpaid

assessments along with interest. While the FDIC argues that an unjust enrichment claim “allows

[it] to recover additional amounts, namely the ill-gotten profits BANA earned from its unjust

retention of the assessment amounts,” ECF No. 364, at 34, it fails to explain why that renders its

statutory remedy inadequate. As BANA explains, “[e]quitable relief will virtually always offer a

remedy distinct from or additional to the remedy available under a legal claim,” ECF No. 376-2,

at 32, but that it would be incorrect to consider a statutory remedy inadequate simply because it is

different from potential equitable relief, id.

BANA has the better of the argument. The remedy at law need not be identical to the

equitable remedy; rather, it must be “sufficient” and “as practical and efficient to the ends of

justice.” Watson v. Sutherland, 72 U.S. 74, 78 (1866). The remedy provided by FDIA—the

FDIC’s ability to recoup unpaid assessments for quarters not barred by the statute of limitations,

with interest—reflects Congress’s judgment that the FDIC should be made whole for the losses it

faced due to BANA’s actions. And because the FDIC’s legal and unjust enrichment claims arise

55

from the same facts and circumstances, there is no additional conduct that is addressed by the

unjust enrichment claim.

The court is further not convinced that equitable relief would be more “practical” or

“efficient” at dissuading banks from further wrongdoing. Id. at 76. “[D]isgorgement is an

extraordinary remedy, and if it is ever appropriate, it should be used only in situations where the

deterrence rationale is so important that only disgorgement will serve a socially useful purpose.”

Nat’l R.R. Passenger Corp. v. Veolia Transp. Servs., Inc., 886 F. Supp. 2d 14, 20 (D.D.C. 2012).

The FDIC fails to show how the already substantial sum BANA will have to pay under the FDIA—

which will be over five hundred million dollars, plus interest—would not dissuade future,

intentional wrongdoing. In the absence of an additional “deterrence rationale,” the court does not

find the “extraordinary remedy” of disgorgement appropriate. Id.

Additionally, nothing in Section 1817(h)’s savings clause authorizes equitable relief when

the FDIC already has an adequate remedy at law. To be sure, Section 1817(h) provides that “[t]he

remedies provided in this subsection and in subsections (f) and (g) shall not be construed as

limiting any other remedies against any insured depository institution, but shall be in addition

thereto.” 12 U.S.C. § 1817(h). But, as BANA points out, “Section 1817(h) is a rule of construction

clarifying that other remedies are available”—“it does not override independent legal

requirements,” ECF No. 367-2, at 76, namely, that the FDIC must still meet the ordinary

requirements of eligibility for equitable relief. Because the FDIC cannot show that it lacks an

“adequate” remedy, the court agrees with BANA that the savings clause “does nothing to aid the

FDIC’s argument” that it is entitled to equitable relief. ECF No. 367-2, at 76. 26

26

The parties dispute what the statute of limitations would be for an unjust enrichment claim. The

FDIC posits that the relevant statute is 28 U.S.C. § 2415(a), which provides that an “agency” may

56

D. Availability of Equitable Defenses

Finally, BANA raises several affirmative equitable defenses, including acquiescence,

estoppel, and waiver, which it argues each “independently foreclose all of the FDIC’s claims.”27

ECF No. 376-2, at 29. The FDIC responds that “[e]quitable estoppel and acquiescence are

unavailable as a matter of law against the FDIC,” and that in any event, BANA fails to satisfy the

elements of each defense. ECF No. 372-2, at 59-60. The court agrees that, in limited

circumstances, a defendant can assert equitable defenses against a government agency, but that

BANA has failed to substantiate them here.

While the Supreme Court has held that “the Government may not be estopped on the same

terms as any other litigant,” it has repeatedly declined to “rule that estoppel may not in any

circumstances run against the Government.” Heckler v. Cmty. Health Servs. of Crawford Cnty.,

Inc., 467 U.S. 51, 60 (1984). The Supreme Court’s hesitation in Heckler was driven by its

reluctance “to say that there are no cases in which the public interest in ensuring that the

Government can enforce the law free from estoppel might be outweighed by the countervailing

interest of citizens in some minimum standard of decency, honor, and reliability in their dealings

with their Government.” Id. And the D.C. Circuit has held that “the doctrines of unjust enrichment

and of equitable lien . . . are available to private parties seeking equitable relief against the

file a claim founded upon a “contract . . . implied in law” any time “within six years after the right

of action accrues.” ECF No. 364, at 37 (quoting 28 U.S.C. § 2415(a)). BANA responds that the

three-year limitations period in “Section 1817(g) governs over general, default limitations periods

found elsewhere in the U.S. Code.” ECF No. 376-2, at 21. The court need not decide this question

because it concludes that equitable relief is not available. While the court would have needed to

decide the issue if the FDIC had argued that Section 1817(g)(2)(B)’s three-year statute of

limitations rendered its remedy at law inadequate as it pertained to assessment quarters beyond the

statute of limitations, the FDIC does not make such an argument. See generally ECF No. 364,

at 47-50; ECF No. 372-2, at 18-26, 40.

27

BANA previously asserted a laches defense, ECF No. 67, at 14, which it does not present here.

See ECF No. 372-2, at 59; ECF No. 376-2, at 29 n.11.

57

government” because “the ‘sovereign’ nature of an agency’s action does not immunize the agency

from the reach of equity.” ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104, 1113 (D.C. Cir. 1988);

see Trans-Bay Eng’rs & Builders, Inc. v. Hills, 551 F.2d 370, 376 (D.C. Cir. 1976).

However, while equitable defenses are available against the government in some

circumstances, their use is limited. This is because “[t]o allow a private party to assert equitable

doctrines . . . against the government when it is enforcing the interests of the ‘citizenry as a whole’

would be to punish the broader public and undermine enforcement of law ‘because [of] the conduct

of [the government’s] agents.’” Hyatt v. Vidal, No. 05-CV-2310, 2022 WL 17904225, at *6

(D.D.C. Dec. 23, 2022) (third and fourth alterations in original) (quoting Heckler, 467 U.S. at 60).

And “[t]his principle is at its apex when the government is ‘attempting to enforce a congressional

mandate in the public interest.’” Id. (quoting Sec. & Exch. Comm’n v. Gulf & Western Indus.,

Inc., 502 F. Supp. 343, 348 (D.D.C. 1980)). Thus, private parties seeking to assert equitable

defenses against the government must “establish government misconduct rising to such an

egregious level as to overwhelm ‘the public interest in ensuring that the Government can enforce

the law free from estoppel’ with prejudice rising to the degree ‘of a constitutional violation.’” Id.

(quoting Bartko v. Sec. & Exch. Comm’n, 845 F.3d 1217, 1227 (D.C. Cir. 2017)).

Accordingly, while the court concludes that equitable defenses can be asserted against the

government, BANA has not presented the court with any reason to believe that the FDIC’s conduct

was so “egregious” that they are warranted. Hyatt, 2022 WL 17904225, at *6 (quoting Bartko,

845 F.3d at 1227). Indeed, the parties’ briefing on BANA’s equitable defenses is sparse, see ECF

No. 364, at 53-55; ECF No. 367-2, at 70; ECF No. 372-2, at 59; ECF No. 376-2, at 10, 29-30, and

BANA does not substantiate its claim beyond stating that the elements of its three equitable

defenses are satisfied for “all the reasons discussed above with respect to fair notice and intent to

58

evade,” ECF No. 367-2, at 70. The court has already rejected the argument that BANA lacked fair

notice, and BANA’s defense on the FDIC’s intent to evade argument does not carry its affirmative

burden of showing acquiescence, estoppel, or waiver.

V. CONCLUSION

For the foregoing reasons, the court concludes that the 2011 Rule is valid, that BANA is

liable under it, and that the FDIC may seek to recoup BANA’s unpaid assessments from 2Q 2013

through 4Q 2014. Accordingly, the court will grant in part and deny in part the FDIC’s Motion

for Partial Summary Judgment, ECF No. 361, and grant in part and deny in part BANA’s Motion

for Summary Judgment, ECF No. 366, and it will enter judgment in favor of the FDIC and against

BANA in the amount of $540,261,499.90, representing the underpaid assessments from 2Q 2013

through 4Q 2014, plus pre- and post-judgment interest. A contemporaneous order will issue.

LOREN L. ALIKHAN

United States District Judge

Date: March 31, 2025

59